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Positive Divergence: Dollar Vs. Market Suggest Stock Rally Soon

|Includes: DIA, QQQ, SPDR S&P 500 Trust ETF (SPY), UUP

The markets are taking a beating today. The SPDR S&P 500 ETF (NYSEARCA:SPY) is trading at $130.44, -1.76 (-1.33%). While things look ugly, there is a major silver lining showing up. This is a positive divergence between the markets and the U.S. Dollar.

The Dollar and the markets have an inverse relationship. Whenever the Dollar rises, the markets sell. This can be clearly seen on any Dollar, S&P 500 chart spanning the past few years. While this relationship still remains somewhat in tact, there is a divergence showing up today.

The divergence is as follows. As the Dollar ETF, PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP) has made new multi month highs, the SPY has not made new lows. This tells us the markets are beginning to find a short term bottom for the next week or two with upside very likely. In addition, when the Dollar finally peaks at resistance and pulls back, the markets should see a solid rally.

Gareth Soloway