Author: CJ Brott, Capital Ideas
Disclaimer: CJ Brott owns VXX in his Covestor ETF Only and Macro Plus Income models.
October 6, 2010: It has become accepted wisdom that the stock market will move in an inverse relationship to the dollar. That is exactly what happened last month as the dollar index fell and the stock market rose sharply. Although the policy confusion in Washington appears to be the perfect backdrop for continuing dollar weakness we are beginning to grow cautious about an immediate extension of the dollar’s drop. Just as dollar strength became extended in June we believe the current decline is getting overdone. With so much money betting on a continuing fall in the dollar it is probably time to become cautious. If the dollar were to stabilize the momentum buyers furiously crowding into stocks would look for the exits. That is the risk we are hedged against with our position in the Ipath S&P 500 VIX ETF (VXX: NYSE).
