The most important chart in the stock market today is the chart of the U.S. Dollar verse the Japanese Yen (USD/JPY). Simply put, when this currency pair moves higher, so does the stock market. The opposite is true when the USD/JPY chart declines, the major stock market indexes in the United States, Europe, and Japan will decline.
If you look at a chart of the USD/JPY you will see that the major stock indexes such as the S&P 500 Index (NYSEARCA:SPY) will follow this currency pair in virtual lockstep fashion. This lockstep relationship between the USD/JPY and the major stock market indexes has been intact since late 2012. While this highly correlated relationship, like many others will not last forever, it is worth watching closely at this time.
Why does the major stock indexes follow the action in the USD/JPY chart so closely? The reason that the stock markets follow the USD/JPY chart is because the highly leveraged institutional money is betting on the USD/JPY going higher. In other words, the Japanese Yen will decline against the U.S. Dollar. When this happens the institutional money takes their leveraged profits and buys the major stock indexes in the United States and Europe. In fact, today the S&P 500 Index futures (ES-H4) was lower at the start of the trading session, but rebounded as soon as the USD/JPY chart surged higher. This chart of the USD/JPY should be on everyone's desktop at this time.