Weak Dollar Theme

Since the FOMC meeting on September 21, a clear trade has taken place.  Long commodities, short dollar.  Stocks are being swept up higher following this theme.  We need to delineate all stock market action as pre 9/21 and post 9/21.  Pre 9/21, stocks went up because they were oversold, pessimism was high, and funds were re-risking.  All gains since 9/21 are due to stocks following a weaker dollar and stronger commodities.  I want to emphasize that stocks going higher are not making the dollar weaker and the commodities stronger.  It is the other way around.

If you can grasp this concept, you can see why we had intraday weakness in the market on Thursday.  The euro made a short term top above 1.40, along with the ES making a top at 1163, and reversed hard but was able to stabilize above 1.39.  For a moment, the market was worried that the weak dollar trade had reached a top and stocks sold off in sympathy.  But the euro stabilizing helped the market to rally into the futures close.

Every 1-1.5% rally in the dollar till the next FOMC meeting should be shorted. 

Stocks are at the mercy of the weak dollar theme.  This will play out till November 3, the next FOMC meeting.  Everything else is a sideshow.