Traders may want to refocus attention from the S&P 500 to the greenback. That was a key takeaway from our exclusive client-only Morning Market Briefing webinar this morning.
Using Fibonacci Retracement lines on his Chart Analysis, TradeStation VP David Russell showed the U.S. dollar index (@DX) hit the 38 percent retracement line for its drop between December and late-January. (See arrow on chart below.) That may suggest its longer-term downtrend will continue despite strong economic news on the domestic front.
Russell added that such a backdrop is usually favorable for copper (@HG), which tends to follow sentiment toward the broader economy. He said you can see how this impacts other assets by looking at miner Freeport-McMoRan (FCX), which is down more than 10 percent from recent highs despite reporting better-than-expected results on January 25. (FCX ranks among one of most liquid names for options traders in the entire market, according to TradeStation data.)
The weak dollar has also been lifting global stocks since last spring. This year has brought strong industrial reports in Europe and China, as well, plus better political conditions in Latin America.
Speaking of Latin America, Russell noted that Brazilian stocks suffered much shallower pullbacks in February than their U.S., European or Chinese counterparts. He interpreted that as a sign of relative strength and said customers may want to consider major names from the country such as Petrobras (PBR), Itau Unibanco (ITUB) and Banco Bradesco (BBD).