How a Stronger Dollar May Affect your Investments:

We’ve mentioned a couple of times that there is an appearance of a strengthening dollar in the world recently. Here’s a graph that shows some of the data we’re examining. It shows the history (since spring) of the US Dollar vs. other world currencies. A slant to upward right shows strength and downward right- where we have been since May- shows weakness.

You’ll note that there’s been a general weakness, and the dollar has been dropping vs other currencies, until the beginning of this month. Then something happened. As you know, as technicians we care less about why something happens than about WHAT is happening. So, from the chart, one can see that there appears to be a strengthening happening since about Sept. 1st. When it began we were thinking that this would be only a couple of days of a trend, but now we’re looking at a three-week ‘trend’. Long enough to suggest that this could be the start of a strong dollar trend, but of course we will only know at some time in the future whether this apparent trend continues, or if this short period is an aberration, and the dollar will then revert to its longer downtrend.

Why does it matter? Historically a weaker dollar has made US companies goods cheaper on the world markets, translating into more sales and profits for US companies. We’ve certainly seen that over the past six months. However, a cheaper dollar historically has resulted in weaker prices for commodities (especially oil) and gold. Commodities have certainly been weak during this timeframe, but Gold has bucked the general trend and been strong.

With these past correlations in view, we have been big believers in the US stock markets. We have stayed away from commodities and we have held minor positions in Gold. If the trend is changing, it will be time to reassess our client holdings, with an eye toward possibly decreasing US Stocks and looking outside of the US markets for stock strength.

At this point, I personally believe that this is a shorter-term aberration, but as always, I’m ready to be wrong. As a practice, however, we are not willing to STAY wrong, so are considering alternate allocations. Those who are participants in 401k and similar plans might be wise to assess the non-US options which may be available.

Note: as always this is not a recommendation to buy or sell anything. Everyone has their own risk/return profile.

Ron’s Market Minute – Time for a Market Bounce?

We enjoy reading Hirsh’s Stock-Trader’s Almanac, as it gives interesting historical views of ideas, strategies, etc. going on in the markets. They are only history, but nonetheless, interesting. One of his observations (agreed to by many other statisticians) is that the current week (last full week in September) has been either the 3rd worst, 2nd worst, or worst week for US market returns (since 1950). A lot can happen between market open and close on a Friday, but so far this looks like a pretty weak week.

Remembering that the market goes up like the path of someone playing with a yo-yo as they walk up a flight of stairs, and also noting that the market has been mostly straight up since spring, it’s pretty reasonable to expect the market to take back some of its gains on the latest up-leg, before continuing on its current longer-term upward trend. It looks like we’re seeing that this month.

So, the Nasdaq has appeared to print a low on Sept. 21 (down 14% from its recent peak-a ‘normal correction’), and the other 4 major indexes on Sept 24. In my (currently bullish-leaning) world, that would potentially look like a turning point, and time for a (perhaps very short-term) bounce. Also note that a ‘correction’ normally comes with a comforting sense that the lost ground will be followed by a period of repair, which leads to a healthier market (which would make all of us happier!)

I also note (thank you Mr. Hirsh and many others) that the traditionally strongest periods in the US markets begin with the month of October.

With these thoughts in mind, we’re looking for (although not predicting) a bounce, followed by a return to the current longer-term uptrend. We’ll see whether Ms. Market agrees with us.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk


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Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC. Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

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