Posted by: jhamon | June 20, 2009

S&P 500 and US Dollar in Inverse Relationship

6/22 Update: Dollar/SPX inverse ratio continues today…
Rob Hanna writes a very interesting blog in which he statistically evaluates market ideas.  His most recent post (A Dollar’s Edge) examines the inverse relationship between the S&P 500 and US Dollar.  He demonstrates this with an excellent visual that plots SPX (red) against UDN (the inverse dollar ETF) reproduced below.

Inverse US Dollar vs S&P 500
Inverse US Dollar vs S&P 500

Rob observes:

As you can see they’ve pretty much moved in concert over the last year-plus. Since UDN is a bearish fund this means that the S&P has actually moved opposite the dollar. A weak dollar has been cause for celebration and a strong dollar has closely preceded most of the drops in the S&P.

What can conclude from such an insight?  Why, back to my old favorite!  Forget the news and the macro-economic theses.  Instead trade the trend.

There’s more good stuff in his post.  Read the rest here.


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