Get the direction of the U.S. Dollar right, and you'll get most things in macro right. As we've noted before, the dollar has a material inverse correlation to the CRB index, gold, and the S&P 500. So, with the dollar up three of the last four weeks, that's been a major headwind for the "S&P is gonna rip to all-time highs" crew. It also helps explain why the S&P 500 has been down three straight weeks.
Where do we go from here?
Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:
"Interestingly, but maybe not surprisingly, the US Dollar Index is starting to stabilize and signal a series of higher-lows (93.11 support) within its bullish long-term setup – consensus (CFTC futures/options) is positioned bearish USD and long Oil and Gold here."
Take a look at the chart of the CRB index. Upon closer inspection, the parallels between the commodities index and the U.S. Dollar are fairly obvious:
"CRB Index (19 commodities) looks like the upside down of the USD on a 3yr look-back – inasmuch as USD would have to breakdown and hold below the 92-93 range, CRB would have to breakout above the 190-192 range and my math doesn’t see that happening anytime soon."
Then there's gold. We're still bullish ... but only at the right price.