Daily Market News - 18th October 2022

The Dollar Dilemma

Most of you won’t pay attention to currencies because the truth is, everyone mostly wants to know what Apple or Tesla’s doing.

I get it.

Currencies generally aren’t front and centre of everyone’s investment decisions.

They can be quite boring, but for us professionals who look for that all important “edge”, the data is invaluable.

In this weeks letter I’m going to lay out what I believe needs to happen for stocks to move meaningfully higher, and it involves currencies.

Because currencies matter.

But lets kick things off with the chart everyone watches daily.

S&P500 ETF (SPY)

When assessing the broader averages, I like to use basic support / resistance levels.

Nothing too fancy about that, but what 99% of you reading won’t pick up on is that the percentage of stocks making new 6 month lows peaked a few weeks ago.

Of course, it’s just 1 data point (of which there are many).

We could absolutely get another spike by the end of the week on the heels of negative earnings, but some of the data has changed meaningfully since my last letter, and there is a little bit of light shining through. Not a lot, but it’s a start.

If you missed my letter LAST WEEK - TIME TO BUY THE FEAR - you’ll know I highlighted the risk:reward propositions by going long set against the backdrop of negative sentiment.

Dollar Index vs S&P500

If you’ve followed my work closely this year you’ll know I’ve been banging the drum on the US Dollar, so much so that you might be thinking, “here he goes again”… but bare with me.

The big question I’m asking today is, what needs to happen for the Dollar to go down so that stocks can meaningfully start to go up?

Lets take a quick look at the weightings for the US Dollar Index.

• 58% Euro

• 13% Japanese Yen

• 12% British Pound

• 9% Canadian Dollar

• 4% Swedish Krona

• 4% Swiss Franc

Invesco Euro Trust (FXE)

If the Euro makes up 58% of the Dollar Index, so we probably want to keep an eye on what the Euro is doing.

That’s not a “feeling”, it’s just basic math.

With the Dollar ripping against nearly every currency on earth, at some point it will stop going up, and if the Euro can give us some kind of indication of a change of trend, that would be a decent starting point.

It’s not just the Euro, it’s also the Yen and the Pound. I made a bottom call on the pound a few weeks ago, so hopefully we can see the Yen and Euro put in some kind of meaningful bottom also.

I’ll be keeping a close eye on the charts and the data.

In Conclusion

It’s of course a choppy market, that likely won’t change.

But volatility with stocks moving to the upside is still upside.

Our members have been receiving long ideas for a couple of weeks now, they’ve been working well.

I’ll also be looking for stocks to start going up on bad news soon. That would be another signal in my world.

I’ll be keeping a close eye on all the charts and the data.

What will you be watching?