This stock market seems to have an illness called schizophrenia. In late September, the major stock indexes declined lower, the Dow Jones Industrial Average dropped by over 1000.0 points only to recapture all of those declines in 15 trading days in the month of October. Ten percent rallies and declines are becoming normal trading ranges these days. In the past, the stock markets would rally higher or lower by ten percent in a year. These are certainly not normal times.
What causes these large wide range stock market swings? Well, there are several things that can affect markets, however, the main catalyst is currency. The major stock markets seem to be moving on the back of currency intervention, mainly the U.S. Dollar. As you all know, the U.S. Dollar is the world's reserve currency, therefore, most every commodity must be purchased with U.S. Dollars. If you have ever traveled to Asia you may have noticed that most businesses will take the U.S. Dollar for payment before they take their own currency. This tells us that the strength of the U.S. Dollar is what is moving the stock markets around the world.
Recently, the leading commodity stocks have bounced higher as the U.S. Dollar Index sold off. This morning, the U.S. Dollar Index is trading higher and just about every leading commodity stock is selling off today. The only commodity that is not declining lower today is WTI oil, traders must remember that oil can be affected by weather. Currently there is a hurricane that is developing in the Caribbean Sea and is expected to reach the Gulf of Mexico by the end of the week. This is certainly part of the catalyst for higher oil.
The news out of the European Union is simply one of the most bizarre scenarios that we have ever seen in our life times. Traders cannot follow all of the news that comes out of that region regarding the European bank bailout. Therefore, traders should simply watch the U.S. Dollar Index(DXY). When the DXY rallies the major stock indexes will decline and deflate lower. The opposite is true when the DXY sells off or pulls back, the major stock indexes will inflate and trade higher. Traders should continue to expect these schizophrenic markets going forward. The only beacon of light that we have as a trader to navigate us through these turbulent markets is going to be to follow the U.S. Dollar Index.