There was a lot of chatter yesterday about a so-called death-cross transition in the U.S. Dollar Index chart. This is the movement on a chart when the 50-day moving average moves below the 200-day moving average, which is generally a bearish signal. (For the record, I prefer exponential moving averages versus simply moving averages.) From a technical view, one could argue that the formation of a double top in April might have marked a top. Since then, there has been a series of lower highs, although support has held, resulting in a descending triangle.
Most of the time, descending triangles is bearish formations unless the top trend line is broken on strong volume, but that window is often short-lived.
However, beyond the technical aspect of current dollar weakness, there’s the fact that American businesses want the greenback to back off. The strong dollar has been the nemesis of multinational corporations, holding down top lines and making earnings beats more difficult.
Key Indices
The hardest hit during the broad stock market summer meltdown were biotech stocks and small cap stocks. Both had been unstoppable for so long that it was hard to argue they weren’t overbought. Biotechnology stocks were exhibiting softness before Hillary Clinton’s tweet, voicing displeasure with the industry, and offering a policy proposal that would cap drug prices and earnings. Of course, the shorts were all over the industry and getting killed. Some say; however, the fact drug pricing didn’t come up at the Democratic debate sparked a ‘sigh-of-relief’ rally. I think it just oversold on a near-term basis.
On that note, one-trick ponies that lay and produce egg will be crushed.
Small caps have finally stumbled after defying the laws of gravity for a few years. The Russell 2000 is only down 3.4% for the year and is still mired in a channel of lower highs and lows. Another session like yesterday could officially reverse the old downtrend and spark the fresh trend to go higher.
Moreover, there still hasn’t been a blockbuster earnings report, although we’re just getting started this earnings season.
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