The Real Kiss of Death

Nicholas Santiago
Chief Market Strategist
www.InTheMoneyStocks.com

Recently before the stock market bounce in early July the majority of
traders and investors were frightened by the so called death cross on
the Dow Jones Industrial Average and the S&P 500 Index. This is
when a major moving average on a chart crosses over the larger moving
average to the downside. Many regard this so called death cross as a
very bearish stock market signal. At the same time as the death cross
there was also a massive head and shoulders top in place that was
publicized on every business news channel and radio program around the
world. Obviously when everyone is talking about the same thing rarely
will the stock market accommodate and allow that bearish pattern to
play out as expected. While every trader and investor is talking about
these negative chart factors they should really look at the real kiss
of death for the market.

The real kiss of death for the stock market is when the stocks and the
U.S. Dollar decline simultaneously. Remember when the dollar declines
the stock markets are supposed to inflate and trade higher. Therefore,
if the U.S. Dollar and the major stock market indexes decline together
that is telling us a much larger problem is taking place. The major
problem would be deflation to the highest degree. During the 2009 rally
the saving grace for the stock market and the leading catalyst was that
the declining U.S. Dollar. As the dollar dropped most stocks and
commodities inflated much higher. Just look at how the leading
commodity stocks such as Freeport McMoRan Copper & Gold INC
(NYSE:FCX), United States Steel Corp (NYSE:X), and Rio Tinto plc
(NYSE:RTP) traded in 2009. These stocks soared on the back of the
weaker U.S. Dollar. Since the dollar rally in 2010 these leading
companies have struggled greatly.

When the major stock market indexes decline with the dollar and gold
use caution because this is a signal that cannot easily be fixed.
Deflation is a very powerful force that few understand. Over the past
100 years in the stock markets it has been inflation that has propped
the stock markets, housing markets and the price of a movie theater
ticket higher. When the market can no longer inflate on the back of the
weaker U.S. Dollar beware.