TIMES BE A CHANGIN?

Now that the latest Non Farm Payroll report has been released something interesting is potentially developing. First though, I really think the NFP should be renamed the NOW FOOL PEOPLE report. I don't know what industries readers work in, but the ones I have interests in, the real life situation of layoffs and compensation is deteriorating at a rapid rate right now. The big picture everything is getting better spin is hard for me to see in the real world.

What I have in this chart above is a picture of the DJIA with other markets overlayed to illustrate the typical intermarket relationships that have existed historically. There are brief periods where they waver, and we have been in one of those recently which you will see on the next chart. First, though notice that typically the US Dollar and STOCKS have moved in unison, and GOLD and CRUDE have no real relationship that is consistent. During this time period I have here, there appear to be some with GOLD AND CRUDE to STOCKS, but they are not consistent over time. It is the DOLLAR relationship that is important here.

The Bond Market in green has typically been a good harbinger of trend changes as you can see at the top. The Bond Market started a decline ( higher rates ) a few months before the Stock Market peaked. This has been a consistent pattern over time. You can also see at the low in 1993 on the left part of the chart, the Bond Market started a strong rally, then a bit later Stocks followed.

In summary, you can make your own observations by enlarging this chart and looking at it, but there has been no real consistent relationship between GOLD, CRUDE, and Stock prices. Also, there has been one with the DOLLAR and STOCKS moving together. This last one is the one that has come off the rails recently as the next chart shows.

Notice here how during the big rally from the 2002 lows the dollar was moving down. Also during the crash of 2007 - 2008 how it moved up. Lastly, how it has moved down during the 2009 rally. These are the opposite of what has historically happened as the first chart shows. What is interesting today, is that on the NFP report which was much better than expected, both the DOLLAR and STOCKS are moving higher together. This is one of the first significant signs that this relationship is coming back into line with what it fundamentally should be.

We will have to see if the Dollar rally sticks, we have had a few false starts recently where it appeared to be breaking it's downtrend, only to fall back again. The one relationship that I have not discussed here is the Dollar to Gold connection. This relationship is obviously and inverse one and that has remained consistent recently. As a result, if the Dollar is to rally, it is likely commodities will fall. It will be interesting to see how this plays out. Anyone who reads here knows that I think the DOLLAR is a short squeeze waiting to happen.