All the talk in the media is about how good the month of September has been. Since the start of the month of September the S&P 500 Index has rallied higher by about 11.0 percent. As we all know by now, historically September has been one of the worst month's for the major stock indexes. However, in the past seven years only 2008 was a negative September.
The cause for the meteoric rise in the market indexes this month is very simple. It was simply the decline in the U.S. Dollar Index. The U.S. Dollar Index is a measure of the value of the U.S. Dollar against a basket of six foreign currencies. They are the Euro (57.6%), Japanese Yen (17.8%), British Pound (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.3%), and the Swiss Franc (3.6%). Therefore, should the U.S. Dollar Index decline then the major stock indexes around the world will inflate higher. Please remember the U.S. Dollar Index is the world’s reserve currency. Since June 7th, 2010 the U.S. Dollar Index has traded lower by 11.0 percent. In the month of September the U.S. Dollar Index has declined by just over 5.0 percent. In the currency world this is certainly a major move lower.
The leading stocks this month have certainly been the NASDAQ 100 stocks. Apple Inc. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN), Baidu.com Inc. (NASDAQ:BIDU), and Google Inc. (NASDAQ:GOOG), have all soared higher throughout the month of September. Often it is the commodity stocks that will lead the advance on the back of the falling U.S. Dollar Index. However, in September technology took the lead.
Gold, silver and gold mining stocks lead the advance in commodities. The popular SPDR Gold Shares (NYSE:GLD) has been making new all time highs nearly every trading day in September. Gold seems to rally when investors fear the stock market and when the U.S. Dollar Index declines sharply. The Market Vectors Gold Miners ETF(NYSE:GDX) has traded very similar to the precious metal by making new highs for the year and reaching its 2008 high levels. This should be a short term resistance level for the GDX at this time.
There are a couple of negative facts for the September rally that must be pointed out. The first is the weak volume. Historically, healthy markets rise on heavy volume and decline or pullback on light volume. That has certainly not been the case in this rally. The second negative fact that can be easily seen in this rally is that the financial stocks have lagged the major market indexes. Since the March 2009 low the financial stocks have been leaders. That is not the case in the month of September. So there you have it, the month of September has been wrapped up in a few paragraphs. 2010 has certainly been a traders year so far and it is likely to remain a traders year into the New Year.
Chief Market Strategist