The big story could be if the US Dollar increases and stocks did not go down, which is extremely unlikely Friday’s pattern continues.

In simple terms, the low interest rates have encouraged investors, mutual and hedge fund managers to borrow dollars and invest them in riskier assets such as stocks, which can provide higher yields. If the US Dollar strengthens (moves up in price), these investors will be forced to sell stocks and then buy Dollars. Because these are leveraged positions, it wouldn’t take much for an avalanche of selling in stocks to begin.

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The improving trend in the jobs picture that is being established is positive on the short term and this sets up the market to continue to gradually move higher.

The Dow30 was up 150 points in the first hour and proceeded to sell off 200 points in an hour as the US Dollar moved up 1.7% Friday. The US Dollar has been on a downtrend since an important bottom in stocks was established on March 10^th dropping from 89 to $74.50 (last week). Any substantial bounce upward in the dollar will have a direct effect and cause the stock market to drop.

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