$DXY 10% Declines along with $SPX declines from 1987-1995

In case you are wondering if the drop in the $USDOL DXY US Dollar of 10% from a high is a sign of something major going on in the stock market, it reminded me of research I did right when I got out of college in 1987.

Here's a quick overview of that pattern of DXY declines of 10% against the backdrop of SPX or S&P500 Index declines at that time. The 1987 stock market crash is on the far left of this graph and gets the chart started for you to review.

The 10% drops from highs in the DXY index are labeled with yellow arrows and there were 9 of them across this time series from 1987-1995.

We can imagine how a Non-US investor would handle both a drop in the DXY and a drop in the SPX, but a drop of both the DXY and SPX of 10% together would mean a loss of 20% for the non-US investor. That is a painful loss and perhaps more than investors wanted to risk.

Historically, it was a good time to look for a stock market bottom AFTER a drop in the DXY index and the green boxes at the top show the risk of a deeper decline in the SPX was minimal after this scenario.

So the end result of this analysis is that the Dollar can be viewed as a contrarian indicator after a meaningful decline, as in 10% in this time frame. Look for other signs of a market bottom, especially using my VIX signals (5 point spike indicator and VIX75% retracement) to help define a bottom. The VIX75 signal triggered on Monday, March 24th, indicating that the panic from the selloff had moderated to a point enough to signal that the panic was over.

Do some more research for yourself and see if the DXY drop was an "asset allocation" shift as US investors bailed out of US stocks to invest in non-US stocks or was it another wave of non-US investors dumping US stocks to cut risk.

Either way, know what you are investing in and question everything. These days, it is more important to be educated and use TradingView to chart and research the past will help you be a more educated investor.

Cheers,

Tim