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Chart Of The Week: When The Nasty, Is Good...

Despite it not being mainstream economic thought yet, I continue to anchor on the US Dollar being the lead indicator for the US stock market. In the immediate term, what is bad for the US$ is going to be good for the stock market.

This week was the 1st week of 2009 where the US Dollar declined on a week over week basis. Importantly, the buck didn’t stop going up until we received these two nasty economic reports show in the chart below (jobless claims, and the unemployment report). I’ve been saying this for the last few weeks, and I’ll say it again, and again, the worse the economic data gets, the better it is for the stock market – nasty news (including socializing Wall Street’s losses) breaks the buck’s upward momentum. Deflating the Dollar, re-flates the stock market.

The SP500 was +5.2% this week, and the US Dollar was down -0.66%. If they break the buck by another 300-600 basis points, you better not be bearish like this market’s consensus is. This Thursday-Friday move was a powerful preview of what can happen when everyone expects the nasty.

Keith R. McCullough
CEO / Chief Investment Officer