A Look at the Two Dual Rallies in the SP500 and US Dollar Index in 2009

Dec 29, 2009: 2:36 PM CST

With many eyes focusing on the dual (and puzzling) rally in both the US Dollar Index and the S&P 500, I thought it would be good to go back starting with the March 2009 lows and see how many times this has happened recently – it turns out that there have been two times that the S&P 500 and US Dollar Index rallied simultaneously.  Let’s see them.


(Click for full-size image)

Starting with the March 2009 lows (to keep the chart readable), we notice that the dollar rallied into a bear flag-style pattern which I discussed in prior posts:

April 24, 2009: Bear Flag Breakdown for the US Dollar Index

May 7, 2009: US Dollar Index Continues its Slide from Bear Flag

May 26, 2009: US Dollar Completes Bear Flag as Expected

As the Dollar Index formed a bear flag rally, the S&P 500 also rallied.  Early April was really the only time that the US Dollar Index and the S&P 500 rose together for any meaningful period.

I’ve highlighted the three times that the Dollar Index formed any sort of upward counter-trend rally and compared it to what the S&P 500 was doing at the time – which was either pausing or declining slightly.

That brings us to the present, when the US Dollar Index (finally) is rallying off lengthy positive momentum divergences… but so is the S&P 500.

Not only is the S&P 500 not pausing or retracing downward, it is actually creeping its way higher along with new swing highs in the Dollar Index.

Market moves can be ‘fishy’ on the low volume and participation across the board that takes place in December, so it will take a few weeks into January to see how this ‘strange bedfellows’ relationship will play out when volume/participation increase in early 2010.

For now, keep watching closely and be ready to shift if a sudden move begins in either of these markets.

Corey Rosenbloom
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

5 Comments

5 Responses to “A Look at the Two Dual Rallies in the SP500 and US Dollar Index in 2009”

  1. Bob Says:

    I recently read a article which presented a solid arguement for US Dollars moments of strength being closely tied to global uncertianty. Events like war, oil disruption, regional political instabilities and terrorism now seem to be having a more significant “flight to quality” effect. Of late, the US Dollar seems to be a beneficiary.

    It would be interesting to go back and review global news highlights to see if the noted divergences between the USD & S&P were also associated with an event that produced a “flight to quality effect”. It's possible there is a skewing effect impacting the USD price structure.

  2. Bob Says:

    I recently read a article which presented a solid arguement for US Dollars moments of strength being closely tied to global uncertianty. Events like war, oil disruption, regional political instabilities and terrorism now seem to be having a more significant “flight to quality” effect. Of late, the US Dollar seems to be a beneficiary.

    It would be interesting to go back and review global news highlights to see if the noted divergences between the USD & S&P were also associated with an event that produced a “flight to quality effect”. It's possible there is a skewing effect impacting the USD price structure.

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