One Chart Says It All

There is always a driving force that moves stock markets and it is not the stock price of Apple Inc (NASDAQ:AAPL). Believe it or not, it is the action in the U.S. Dollar Index that moves markets. When the dollar declines the major stock indexes inflate and trade higher. That is obviously evident by just looking at a chart of the U.S. Dollar Index and the S&P 500 Index today, you can clearly see the inverse relationship between the two indexes.

The U.S. Dollar Index is a measure of the U.S. Dollar against a basket of six leading currencies such as the Euro, British Pound, Japanese Yen, Swedish Krona, Swiss Franc, and the Canadian Dollar. It is also important to note that the U.S. Dollar is also the world’s reserve currency, therefore if you want to buy a barrel of oil you must purchase it in U.S. Dollars, you cannot buy oil in Japanese Yen or Swedish Krona. That is why the goods that people need for survival such as oil, gasoline, and food increase when the U.S. Dollar declines or becomes diluted by central banks. Yesterday, crude and gasoline prices declined sharply lower on the trading session, this is because the U.S. Dollar was stronger. Today, the U.S. Dollar is weak against the other major currencies and oil and gasoline are now trading higher on the trading session.

Traders can easily follow the movement in oil and gasoline by watching equities such as the
United States Oil Fund LP (ETF) (NYSEARCA:USO), iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL), and the United States Gasoline Fund, LP (NYSEARCA:UGA). Another leading equity that will trade inverse to to the U.S. Dollar will be the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA). This index has many multi-national companies in it. These companies will usually benefit from the weaker U.S. Dollar as the goods that they sell become cheaper for consumers abroad. The bottom line, since the tech bubble in 2000 the major stock market and commodity indexes have been trading inverse to the U.S. Dollar.

About Nicholas Santiago 575 Articles


Nicholas Santiago started trading in 1991. In 1997, he became a licensed Series 7 and 63 registered representative. He managed money for a large, affluent private client group. After applying his knowledge to his client base, he decided it was time to begin teaching those interested in learning his methods. He is an expert in Technical Analysis. He has become an accomplished technician in the studies of Elliot Wave, Gann Theory, Dow Theory and Cycle Theory. In 2007, he partnered with Gareth Soloway to form InTheMoneyStocks.Com and realize his dream of educating others about the truth of the markets.

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