Stock Buy Signal and Implications for the Dollar

We've repeatedly commented on the inverse relationship between stocks and other assets and the dollar.

Assuming that relationship holds (and we may put some charts up later to prove this relationship), then what does this article from Bloomberg say about the dollar?

Dow Sends Buy Signal That’s Worked Since 1921: Chart of the Day
By Eric Martin and Michael Patterson

July 29 (Bloomberg) -- The Dow Jones Industrial Average is sending a buy signal that has foreshadowed gains of 18 percent during the past nine decades.

The 30-stock gauge climbed to more than 10 percent above its mean level from the previous 200 days, rebounding from 34 percent below the so-called 200-day moving average in November, according to data compiled by Bloomberg. Eighteen of the last 21 times the Dow rallied from at least 10 percent below the 200-day level to 10 percent above, it posted gains during the next 12 months, Bloomberg data since 1921 show.

The CHART OF THE DAY tracks the difference between the Dow’s last price and its 200-day average since 1989. The lower panel displays the measure’s price, along with the buy signals it sent near the start of rallies in 1991, 1999 and 2003.

“This rally, while it will have its fits and starts, is the beginning of a new trend, not just a bounce,” said Michael Williams, managing director of New York-based Genesis Asset Management, which oversees about $2 billion. “It is a significant opportunity.”

The Dow posted an average advance of 18 percent during the 12-month period following buy signals since 1921, Bloomberg data show. In the six-month period, there were 17 advances for an average gain of 8.2 percent. In three months, it climbed 18 times, averaging an increase of 5.7 percent.

Returns by the Dow Jones Industrial Average 12, 6 and 3
months after the buy signal.

Buy Signal 12 Months 6 Months 3 Months
June 11, 2003 13.36% 8.98% 3.01%
Jan 8, 1999 19.49% 15.38% 5.75%
March 5, 1991 9.05% 1.21% 1.11%
Jan 27, 1989 10.18% 13.46% 4.14%
Sept. 3, 1982 31.38% 23.02% 11.67%
July 18, 1980 3.78% 5.34% 3.48%
Aug. 9, 1978 -3.74% -7.76% -9.83%
March 7, 1975 26.43% 8.63% 9.11%
Dec. 7, 1970 4.73% 12.75% 9.69%
May 8, 1967 1.02% -6.60% 1.41%
Jan. 25, 1963 15.20% 1.18% 5.68%
July 24, 1958 33.51% 19.91% 8.53%
Dec. 13, 1949 16.26% 15.04% 3.15%
Nov. 6, 1942 16.66% 18.21% 8.29%
Sept. 11, 1939 -16.61% -4.49% -5.20%
July 6, 1938 -3.05% 10.95% 7.49%
Feb. 18, 1935 43.10% 19.09% 8.06%
Apr. 19, 1933 54.47% 23.53% 51.63%
Aug. 29, 1932 37.72% -31.68% -21.87%
Aug. 18, 1924 35.82% 14.36% 5.46%
Dec. 12, 1921 21.89% 12.53% 8.12%

Average 17.65% 8.24% 5.66%