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Forget Industrial Production. It's All About the Dollar

This morning the two key economic reports were released. The first was industrial production and the second was capacity utilization. The numbers reported for both reports were slightly better than expected. The S&P 500 e-mini futures climbed higher after the report, however, the market was already trading higher at that time. Walmart Stores Inc (NYSE:WMT) and Home Depot Inc (NYSE:HD) both reported earnings this morning that were really nothing to write home about and had somewhat poor guidance looking forward. Therefore, the reason for the market climbing higher today is the weaker U.S. Dollar Index.

When the dollar declines the stock market indexes simply inflate. After the brutal decline in the stock market since the middle of last week the major indexes short term oversold and due for a bounce. Today that bounce looks to be taking place for all the market indexes. This advance higher looks broad based being lead by the agriculture sector. Stocks such as Potash Inc (NYSE:POT), Monsanto Co (NYSE:MON), and Mosaic Co (NYSE:MOS) are gapping sharply higher at the open after Potash Inc rejected a buyout bid from BHP Billiton Ltd (NYSE:BHP) for $38.49 billion.

The key for today's rally is to see how the market holds up into the close. This is options expiration week and often a lot of games will be played by the large institutions. This is the week when the institutional money can and will whip the small options trader right out of his position. In any case the market is behaving very well so far, however, it is important to see how they finish. Keep one eye on the U.S. Dollar and remember as long as the dollar remains weak throughout the session the market should hold up today.

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Nicholas Santiago
Chief Market Strategist