Posted by: rp on the 31st of Oct 2011 at 10:19 am

the stock market seems to be discounting what looks to me as a likely bear trap (dollar bears/stock bulls) on the $USD.  if the dollar can add to these gains and the EUR/USD can’t regain the 1.4040ish level soon, then the dollar should continue to embark on the next leg up in the recently established primary uptrend.  if so, then the equity markets are due for a significant price adjustment based on the recent divergence between the current markets.  on wednesday, the $DXY (dollar index) closed at 76.47 and UUP at 21.50, close to where they are now.  however, the $SPX closed at 1242 on wednesday, almost 30 pts below current levels.  unless the long-standing correlation has suddenly come to an end, one or the other ($USD or $SPX) should play catch-up to the other.  may not happen today due to the month end window dressing but one might want to revisit my previous posts pointing out the very favorable odds of a sell-off after the last day of the month as a result of the institutions artificially holding the market up into the last day.  the last time i posted that i expected this to happen was on sept 30th and the market dropped over 5% in the next 2 trading sessions.  i believe the odds favor this type of sell off again unless we see most or all of today’s currency moves reversed by the close. as always, DYODD.