November 25, 2012 Leave a comment
This is a daily chart of the dollar index. Fundamentals are against the dollar. With continued U.S. deficits and low real interest rates, money will continue to drift towards stocks and real assets. The fiscal cliff is all a fiasco in my opinion. Politicians would not risk another dip in the economy. There maybe more volatility until a compromise is reached between the Republicans and Democrats until Christmas time. This volatility is a good chance at value investing- many strong companies would be trading at a discount. The second chart is the daily S&P 500. We are currently at a resistance zone and volume is decreasing with the increasing price. This looks short term neutral/bearish for the S&P 500 (good time to buy) and may prop up the dollar short term (when you sell stocks you are exchanging them for dollars). Interest rates cannot rise as the Fed is trying to stimulate the housing market, which in turn stimulates other sectors in the economy. Also, it’s is highly unlikely the U.S. will ever change from a welfare and warfare state. This is bearish for the dollar and bullish for stocks and real assets. It looks like we are going to test the 79 area. If this support area does not hold then the dollar could suffer major downside.
Here is the S&P 500 chart: