S&P 500/US Dollar Index Ratio Warns: October Rally Will Fail, Bear Market is Here

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Ugly warning sign for the market.

By Geoffrey Caveney, Dr. Strangemarket:

Historically, the performance of the S&P 500 Index relative to the US Dollar Index has been a good indicator of bull and bear markets. This relationship is expressed in a ratio – the value of the S&P 500 index divided by the value of the U.S. Dollar Index:

  • In bull markets, the S&P 500/US Dollar Index ratio moves upward, the 200-day moving average slopes upward, and the ratio is above the 200-day moving average.
  • In bear markets, the ratio moves downward, the 200-day moving average slopes downward, and the ratio is below the 200-day moving average.

Typically this ratio stalls out about a year in advance of a looming bear market: see 1999 and mid-2007. And in mid-2014, over a year ago, it stalled out again….


By this historical standard, this indicator turned bearish in 2014 and has stayed that way ever since: The ratio has been moving downward since July 2014, it has been below the 200-day moving average since September 2014, and the 200-day moving average has been sloping downward since December 2014.

The ratio has repeatedly tested the 200-day moving average and been rejected: at the end of November 2014, in May 2015 at the stock market’s peak, again in June 2015, and just now in October 2015:


Looking up close at just the most recent October rally, the ratio touched the 200-day moving average on October 16, backed away, touched again October 29, and fell right back under the 200-day moving average at the close on Friday, October 30:


Looking at the big picture, the stock market has been steadily declining relative to the dollar for the past 16 months. Such a trend has never occurred during a bull market in at least the past 25 years. In fact, looking at the historical chart above, one sees the ratio stalled out in 1999, a year before the 2000 crash, and the ratio stalled out again in 2007, a year before the 2008 crash. To me, all of this indicates we are already in a bear market now.

Looking at the short-term trend, in the current rally the S&P 500 / Dollar Index ratio has not even broken above the 200-day trend line as much as it did in May and June. I see the stock market moving downward from here.

It is instructive to compare the current situation to 2011, when the stock market also dropped steeply in August & September and rallied in October. The big difference is, the S&P 500 was much healthier before that August 2011 drop, steadily outperforming the Dollar Index. Therefore it is not so surprising that the drop proved to be just a correction, and the market ultimately rallied back well above its trend line in 2012:


The situation today in 2015 is completely different. The stock market had been trending downward relative to the dollar for a year before the August 2015 drop. It will be vastly more difficult to break out of this downtrend than it was in 2011-2012.

And the S&P’s underperformance of the Dollar Index since mid-2014 is an ugly warning sign for the market. By Geoffrey Caveney, Dr. Strangemarket

In the end, it all boils down to the consumer, and businesses are now catching the drift. Read… Chilling Thing Hershey Just Said About American Consumers

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  11 comments for “S&P 500/US Dollar Index Ratio Warns: October Rally Will Fail, Bear Market is Here

  1. walter map
    November 1, 2015 at 11:43 am

    Every couple of weeks there’s some indicator thats signaling a recession and a downturn in the stock markets. They’re clever but not very meaningful. Stock prices have become uncoupled from economic performance and are largely a function of corporate welfare generated the Fed, which is why stocks have gone up while the recession worsens and only go down when on threats of interest rate increases.

    The global economy is simmering in global corruption and will be cooked until it’s finished.

  2. Sabbie
    November 1, 2015 at 11:57 am

    I’m liking $NYMO right now as a contrary indicator. The bearish divergence and cross below zero looks exactly like last November when the market had its downward run.

  3. Petunia
    November 1, 2015 at 1:07 pm

    The US stock market and the Chinese stock market are now in perfect sync. Neither will be allowed to fall below the floor set by the government.
    The only risk “investors” have is the risk of the floor caving in. It doesn’t really matter what you buy.

  4. November 1, 2015 at 1:32 pm

    Allow me to sum it all up. These charts, and all the other charts, and all the well-meaning financial gurus in the world screaming until they have laryngitis are no match for greed and emotions.

    A lady friend of mine is a millionaire several times over. Not long ago she meets a fellow online and within a week he was telling her he loved her. Than he lost his wallet and needed $3,000 sent to him in Egypt where he was working. Then he needed a very expensive phone so he could stay in touch with her regardless of his location in the Middle East. All this had to be sent to someone else who would then get it to him. The money has continue to flow to the Middle East and now she is flying to meet his associate in Europe who will take her to his location because he cannot leave even for a second, because what he is doing, is vital to our national security.

    I’m way ahead of you. I called the FBI and Homeland Security weeks ago and they had zero interest in talking with me about this. They did divulge that there are a lot of crooks online. I wonder why? My guess is if she returns at all, she’ll be lucky. Since I am her beneficiary, you’d think I’d not care, but I do.

    So what does this have to do with this article? Easy question. If it were not for this pandemic of ignorance and apathy Mr. Wolf wouldn’t be writing such articles. The bottom line: The ones in need of this life saving information are not here, and if they were, they’d say something like, “This is unbelievable. Someone should do something. Well, got to go. It’s bowling night.”

    • James
      November 1, 2015 at 9:03 pm

      You win the internet today. Treat it well.

    • Chris
      November 1, 2015 at 11:57 pm

      Also OT: Your friend isn’t the only one. I know someone who about 50 and was led to believe that some business man in North Africa fell for her. No $$s sent, but it was some sick scam.

      Facebook & Skype are not real when it comes to love. Gotta meet in person, talk face to face…

      What have you tried to open her eyes to getting scammed? Don’t you think that some man with a good job can afford a cell phone? Or use Skype at an internet cafe? Or a friend’s phone? (In Thailand, there were people renting out phones to tourists who wanted to make calls). Some spy should be r e s o u r c e f u l and talk someone into letting him use their phone for a few minutes…

      Hope you can help her!

      • Jerry Bear
        November 4, 2015 at 3:59 am

        Oh well! Did anybody get contacted by a a bank official from Nigeria to help him move millions to America? Did you just win the national lottery in Latvia without realizing you had entered? How about a gold mine in Ghana? I hear they are even reviving the ancient Spanish Prisoner scam to good effect. It is generally an exercise in futility to try to save somebody from the consequence of their own folly if they refuse to listen to you. At least you can comfort yourself with the thought that you tried…..

    • Nick
      November 2, 2015 at 5:02 am

      It’s not really a scam insomuch as its willful self-delusion on your lady friend’s part. They’re called boy-toys. Unemployed, decently educated young men who…have nothing better to do than scam foreign women out of money in exchange for copious amounts of sex. The same thing happens for guys in Thailand.

    • Jerry Bear
      November 4, 2015 at 3:48 am

      Yeah! If you ask the typical American what should be done about this epidemic of ignorance ands apathy, they say: “I don’t know and I don’t care!”

  5. J P Frogbottom
    November 1, 2015 at 4:28 pm

    I just don’t see the big deal here. Inventories grew a bit, that mean replenishment of inventory later. In the United Snakes, our economy is roughly 70% consumer driven. With oil costs low at present, this gives an opportunity for the indebted to pay down debt, or expand consumption on their rather stagnant earnings.
    Until the chicken lady at the FED decides to get off the dime, and raise rates a bit I see the pond scum stagnating here. Of course, higher taxes on imports might jar some to possibly re-inventing building whatever in Amerika. Do I expect this to happen? No ay, just more financial engineering to re-arrange those deck chairs before the USS Turkey rolls over someday.

    • Nick
      November 2, 2015 at 5:05 am

      Don’t people get it yet? It’s impossible for the US to default. Not even Detroit could properly default. What’s that quote? Markets can remain irrational longer than you can remain solvent.

Comments are closed.