 |
Just when nibbling at a dollar rally started to look safe — bam! The real world of rising risk reared its ugly head again.
Two markets that reflect risk are the stock market and crude oil. The stock market because it’s the quintessential risk asset class. And crude because higher prices threaten economic growth and add to inflation expectations.
Both of these markets can greatly affect the U.S. dollar. Today, I’d like to explain what this risk correlation means for the greenback going forward.
Let’s start with …
A Graphic Tour of the
Dollar-Stock Relationship
The dollar, more than any other currency lately, has been the one most negatively impacted by market risks such as deterioration in the credit market or trouble for the U.S. economy.
| Internal Sponsorship |
|
The Great Real Estate Bust Multiply your money ten, twenty, up to thirty times over as the Fed bail-out kills the dollar: The world’s richest market — formerly reserved only for the world’s richest investors — is now giving you not one, but two easy ways to join the profit party in foreign currencies … The greatest profits since the 1980 gold and silver bonanza as natural resources soar: How we find natural resource and commodity stocks that double, triple, even quadruple in a year or less — how you can, too … Go for even larger gains as foreign stocks leave Wall Street in the dust: And how special investments on the world’s hottest stock markets let you go for up to ten times more with strictly limited risk … |
You can see this ebbing and flowing of market risk by observing the price action in the stock market. In fact, the dollar and stocks are now moving in lock step. You can see what I mean in this chart:
Okay, so when stocks go up, the dollar goes up. Easy enough.
But that also means when the stock market goes down, the dollar is likely to do the same. And the stock market is now at a critical juncture!
Look at my next chart …
As you can see, the Dow Transport Average (black line) made a new high recently. However, this high was not confirmed by a new high in the Dow Industrials. This is what is called a Dow Theory non-confirmation setup.
If anything, it appears the Dow Industrials could be turning down in a big way. Should they fall below the key support level of 12,715, we could see some real acceleration to the downside for the overall stock market.
Look at the following chart, and you’ll see what I mean:
Important: If the Dow Industrials Break Down,
The Dollar Will Probably Test Its Old Lows!
What’s More, the Action in Oil Confirms This
Should the stock market break down, investors will get nervous again. And that could mean bad things for the dollar. It likely means the dollar will test its old lows.
What’s more, the recent action in crude oil seems to agree with that scenario. Check out the blow-off high in crude oil:
On my chart, the U.S. dollar is inverted. In other words, the spike you see is the dollar going down. I did it this way so you can see how tightly correlated the greenback and oil prices are. When oil goes up, the buck goes down.
So the question now: Can crude go much higher?
Many of the so-called experts didn’t think it would go this high. But yesterday, I ran the numbers on the movement of crude since May 2000, and here’s what I found:
First, in dollar terms, crude has jumped 330% in price since 2000.
Second, in euro terms, it’s up just 155%.
| External Sponsorship |
|
Build your wealth and protect your “nest egg” … while enjoying a dream retirement OVERSEAS! Discover how you too could live in comfort and style on $1000 per month … protect your savings from U.S. economic disaster … and significantly build your wealth on foreign investments and real estate! |
Third, in terms of gold, crude oil has only gone up 35% since 2000. The numbers show that it now takes 0.140 ounces of gold to buy one barrel of oil, whereas it only took 0.104 ounces back in 2000.
What this means: People holding dollars have felt the spike in oil far more than people holding euros or gold.
In my opinion, crude, gold, and other commodities seem to be taking on a “safe haven” aspect.
So, if this trend continues in commodities — and the stock market breaks down — new lows in the buck cannot be ruled out.
I will continue to watch the stock market and crude oil, and refine my outlook for the dollar as necessary. So stay tuned!
Best wishes,
Jack
About Money and Markets
For more information and archived issues, visit http://legacy.weissinc.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Mathias Korzan, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://legacy.weissinc.com.
From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.
|
© 2008 by Weiss Research, Inc. All rights reserved. |
15430 Endeavour Drive, Jupiter, FL 33478 |
