US Dollar Index down & S&P down (21 Oct 09)

This is probably the worse scenario you can have with the market. S&P was down by about 0.9% and dollar index was down about 0.5%(with EURUSD breaking 1.5). This may signifified that reducing the dollar may have little effect on pushing up at the market at this point. So what will happen next when this happen?

US Dollar Index analysis (21 Oct 09)

By looking at the weekly chart of the dollar index, there might be some rebound from now. Question is will the dollar index in the start of the new bull run? We shall see in the next few week.

True value of S&P 500 based on dollar index (1988 - 2009)

I have drawn up the chart to see the effect of multiplying the S&P500 and dollar index. My purpose is to show why non US investor must know the Dollar Index if they are buying US shares. US Dollar Index is the measurement of US Dollar value compared to other major currencies.

To simplify the chart, I am using one value for each year taken from the beginning of the year. Please note that I have used Oct 09 value for year 2010. Let make a assumption that the movement of your share price is tied to S&P500.

We can see that during year 2001, the product of S&P500 and dollar index is the highest. It means that if you are a non US investor, you will buy or sell US shares at the peak. In 2007, we can see the S&P500 have reach 1438 which is higher than 2001, but the product of S&P500 and dollar index is lower than that in year 2001. It means that if you buy US shares in year 2001 and sell share in 2007, you are in fact making a loss.

The chart also shows that the value of US shares is getting weaker since 2001. The recent bear rally has only reached the value during year 2003. So don't you think US shares are still considered very cheap now? The question now is will it get cheaper or it is worth to buy US shares?

Taiji Symbol VS US Dollar Index

In the last post, I have said that Taiji Symbol is my favorite symbol. For this post, I am using Taiji Symbol to analyse US Dollar Index. US Dollar Index is the measurement of US Dollar value compared to other major currencies. It is important for non-US investors to know this index when they invest in US stock markets. Why? If their stock goes up 10%, but dollar index goes down 10%, basically they are not making money.

Red highlighted portion of both charts represents the tail of the black fish in Taiji symbol. The index started to weaken slowly at this stage.

Blue highlighted portion of both charts represents the body of the black fish in Taiji symbol. The index falls a lot at this stage.

Green highlighted portion of both charts represents the eye of the black fish in Taiji symbol. The index starts to rebound strongly at this stage.

Grey highlighted portion of both charts represents the head of the black fish in Taiji symbol. The index will again fall at this stage. It is hard to tell whether will it break new low but the fall is significant.

The two charts above show my two predictions. The first prediction shows that Dollar index will go up very soon (starting the tail of the white fish). The second prediction shows that Dollar index will still go down (continue the head of the black fish) and break new low before it will go up.