Dollar Rally Imperils S&P 500, Bartels Says: Technical Analysis

Dec. 8 (Bloomberg) — The dollar’s biggest rally since January signaled losses for the Standard & Poor’s 500 Index, according to Mary Ann Bartels at Bank of America Corp. The Dollar Index, which tracks the currency against those of six major U.S. trading partners, had the biggest gain in 11 months on Dec. 4 and rose above its average level from the prior 50 days to close last week at 75.911. Bartels, who studies charts to make forecasts, said the gauge may now reach 76.82, a level last reached on Nov. 3. It has lost the most since 1986 in the past nine months. “The U.S. dollar is bottoming,” Bartels, ranked second among technical analysts in Institutional Investor magazine’s 2009 survey, said in an interview yesterday. “It appears to be the most unloved asset class and sentiment is grossly oversold. A stronger dollar should be negative for stocks.” The U.S. currency index has dropped 15 percent from the three-year high reached in March on speculation the Federal Reserve would be slow to raise interest costs. The S&P 500 has surged 63 percent to 1,103.25 from its 12-year low on March 9 on signs the economy is improving. The biggest U.S. stocks have beaten the smallest this quarter as the dollar’s decline sends investors to companies with the most business in international markets. The S&P 100 Index has risen 4.9 percent compared with the 0.1 percent gain by the S&P SmallCap 600 Index. Companies in the measures have median values of $40.3 billion and $586.7 million, respectively. Bartels said that the currency rally could make the S&P 500 decline to 1,084. Should the “bears win,” the benchmark for U.S. stocks could drop to its 50-day moving average, which was 1,079.16 at yesterday’s close, and then sink to 1,000, she said. “There’s this tug of war between the bulls and bears, and the dollar could be key as to which direction the market breaks,” Bartels said. Technical analysts use price charts to forecast resistance levels, or ceilings restricting further price increases, and support levels, or floors limiting declines. A drop below support is a harbinger of losses.

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