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Strong Dollar Causes Head And Shoulders To Be Everywhere

The major stock market indexes are plummeting lower today. All of the major stock indexes in the United States are trading lower by more than 2.00 percent across the board. Everything that is sensitive to the stronger U.S. Dollar Index is declining sharply lower. The industrial metal and the energy stocks are leading the decline this afternoon. Stocks such as Freeport McMoRan Copper & Gold Inc(NYSE:FCX), Southern Copper Corp.(NYSE:SCCO), and Chevron Corp.(NYSE:CVX) are just a few of the leading stocks that are declining sharply lower. The catalyst for these declines is obviously the stronger U.S. Dollar Index. Many of the leading industrial metal stocks such as Rio Tinto plc(NYSE:RIO), Freeport McMoRan Inc.(NYSE:FCX), and Vale S.A.(NYSE:VALE), have potential head and shoulder patterns(bearish) developing on the intra-day charts. These are big multi-day patterns that could have a lot of potential downside if these patterns trigger and play out to the possible targets.

If there is any economic slowdown in the world it is the industrial metal stocks that would be effected the most. Since the 2009 low, the industrial metals such as copper, iron ore, steel, and metallurgical coal have lead the stock markets higher. If the Federal Reserve does not implement another round of quantitative easing this sector could easily be in a bear market for the foreseeable future. The Federal Reserve just ended their last $600 billion quantitative easing program on June 30, 2011, therefore, it is likely that they will have to wait at least several more months before beginning another round of market stimulus.

Traders and investors must understand that if the U.S. Dollar Index pulls back or sells off the industrial metals and the energy sectors will get a bounce. This rule applies for the intra-day and the daily charts. As a simple rule, just remember that the markets will usually trade inverse to the U.S. Dollar Index.

Nicholas Santiago