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Stocks That Will Fall On A Stronger Dollar

With the minor Dollar reversal today, one has to wonder if the U.S. Dollar has bottomed in the short term. It is very oversold at these levels.  If this is the case, there are many stocks that should fall back down after meteoric runs.  A stronger Dollar means in general, stock prices will fall lower.  Remember, anytime the Dollar weakens, equity prices must move higher to maintain their real value. Technically speaking, a 10% drop in the Dollar should result in a 10% move higher in the equity markets. If this occurs, in real Dollars, nothing has changed.

When the Dollar falls, commodity prices also move higher.  This is why many copper, gold and oil stocks have outperformed other sectors.  If the Dollar starts to gain in the short term, many of these stocks may come back to earth.  I will mention a few.

Chevron Corporation (NYSE:CVX) is the first one that comes to mind because it is a leading indicator for the markets and has had an unbelievable run in the last month. Chevron has gone from a price of $72.56 on August 25th, 2010 to $84.50, the high today.  This was also a new 52 week high. A move higher of $11.94 may not seem amazingly significant, but when we are talking about one of the biggest companies in the world, it is. In addition, yesterday a key double top was breached. Today, there is a reversal and engulfing candle present on the daily chart.  This is a very bearish signal.

The next stock that looks like a possible pull back candidate is Southern Copper Corporation (NYSE:USA) (NYSE:SCCO).  This stock has soared over 40%, going from $27.61 to the high today at $38.84. This has all happened in approximately six weeks.  In addition, the market cap of this copper stock sits at $33 billion while 2011 revenues are expected to be in the range of $6.57 billion.  Earnings are expected to be around $2.68 for 2011.  With earnings of $2.68 per share, the current P/E for 2011 sits at 15. Slightly expensive in my book.

Another company that may see a pull back because of a rising Dollar and a drop in commodities would be Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). Alcoa Inc. (NYSE:AA) reports earnings today as well. These earnings will give the commodity stocks some direction as well. 

Gareth Soloway
Chief Market Strategist