Chart of the Day - Tuesday, January 12th, 2021

USD ripper would likely be bad for US stocks IMO

The correlation has been pretty negative over the last year

USD rippers usually are b/c of risk-off sentiment, which hurts stocks pic.twitter.com/Lyj9vajzFv

— Christopher Cain, CMT (@PythonTrader) January 12, 2021

Today’s Chart of the Day was shared on Twitter by Chris Cain (@PythonTrader). One of the biggest potential risks to Stocks right now continues to be the US Dollar. The S&P 500 and the US Dollar index have been in a negatively correlated regime since March. In other words, the US Dollar has fallen while Stocks have risen. This relationship begs the question; what will happen to Stocks if the US Dollar mean-reverts higher from here? As Chris explains, a sharp move higher in the US Dollar would likely put pressure on Stocks. The good news is that the Dollar is in a structural downtrend, so the path of resistance is lower and any strength will likely be short-lived. Nonetheless, this is one potential risk that we want to keep an eye on in the near-term.