The markets gapped higher today on the back of yet another weak dollar day. The dollar is at its 52 week lows again and looking like it may wan to break lower. This tells us the markets will be up due to the inverse relationship that the dollar has with the markets. Why is there an inverse relationship? Basically it is the the reinflation rally syndrome. As the dollar falls, commodities rise to keep their par value. As they rise, stocks that are based off commodities like gold stocks, oil stocks and such, rise as well. In the S&P 500, these are approximately 20% of the index. Therefore they have a huge weight on the overall index. The reinflation rally is and can be utilized by those in government to prop the markets up and keep them up. Just think, the Federal Reserve just needs to keep pressure on the dollar each day by a slight amount and in theory this market will never fall. Granted, that is in theory and of course reality with be different at some point in time. The problem with a reinflation rally is this. When you hit the dollar it makes each Americans net worth less. Meaning, when the dollar falls by 10%, each citizen is now worth 10% less (buying power). In addition, commodity prices go higher which adds even more pressure to someones wallet as it works just like a tax. Enjoy the ride and thank the Federal Reserve and government. The key level we are hitting now intra day is the SPY $111.15 level. That is not a strong level and very likely will be broken. The big level above that is $111.50. Watch that closely!
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