Finally the Dollar has reversed its down slide! Since the Dollar broke out the 6-year down trend line in September 2014, it topped in March 2015. From March 2015 to September 2017, the Dollar has gone thru a very complex ABC flat correction pattern.
The correction stopped at 50% retracement of the prior rally from June 2014 to March 2015. When the double top is taken out, it will confirm the continued rally. But for now, we can expect the Dollar to reach the double top at its first attempt.
The most visible effects of a strong Dollar to the equities market are as follows:
- Small caps (domestic companies) benefit from strong Dollar, large caps (multi internationals) suffer from strong dollar
- Commodities normally don’t do well with strong Dollar
- Banking benefits from strong Dollar
The above effects have been reflected in the recent breakouts in the small caps and banking sector. The energy sector just can’t get the bull market started. It had a negative performance last week.
We suggest our readers to allocated new capital into IWM small cap ETF and XLF banking ETF. Avoid the energy sector at all cost.
Alternatively, you can open positions in Citi Bank (C) or Bank of America (BAC). These two banks have a long way to go to catch the pre-crisis level.