The most important chart that anyone can follow is a chart of the U.S. Dollar Index. The major stock indexes and most leading commodities will usually trade inverse to the world's reserve currency. For over ten years now the general stock market direction has moved opposite or inverse to the U.S. Dollar Index.
Once again, the major stock indexes rallied higher after a quick decline in the first hour of the trading session. This same pattern seems to be repeating nearly every trading day since late December 2011. Many traders and investors are now looking for this pattern to occur on a daily basis before the noon hour.
Once again, the major stock indexes have found a low by the noon hour and then floated higher into the afternoon. Nearly everyday we see the same pattern repeat over and over. The trading volume remains extremely light which generally favors the upside in the stock market. Traders must remember the old market adage that states, never short a dull market.
Once again, the inverse relationship between the U.S. Dollar Index and the major stock indexes works. This morning, the U.S. Dollar Index futures started the day higher and then just plummeted before the opening bell. This same pattern played out yesterday and the nearly everyday before that.
Nearly every trading day the major stock indexes will decline before the noon hour. This decline in the major stock market indexes usually leads to a light volume rally that lasts into the close. For example, yesterday the major stock indexes dropped sharply lower at the open only to find a low after the first hour and trade basically unchanged by the closing bell.
Light Volume And The Falling U.S. Dollar Keep Markets Buoyant
Nearly every trading session over the past month the major stock indexes rally after an initial morning decline. Some investors may view this action in the market as a sign of strength, however, the trading volume remains extremely light. Light volume will usually indicate a lack of institutional participation, or conviction by the big boys.
This afternoon, leading aluminum producer Alcoa Corp (NYSE:AA) will report earnings after the closing bell. While Alcoa may not move the major stocks indexes much, it is an indication that the start of corporate earnings season is upon us. The trading volume over the past couple of weeks has been extremely light.
This morning, all of the major stock indexes are surging higher at the open. The early rally is sparked by global central bank intervention, The central banks around the world will provide liquidity to the large banks that cannot borrow. We must all believe that the Federal Reserve Chairman Ben Bernanke is behind this move.
The technology heavy NASDAQ Composite has held up better than the other major stock indexes such as the Dow Jones Industrial Average, S&P 500 Index and the Russell 2000. As long as the NASDAQ Composite holds up and does not breakdown, this tells us that people are still willing to take on risk. Please remember, most stocks in the NASDAQ Composite do not issue dividends.