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There has been much talk about currencies -- from the weakening of the euro, which fell apart last week following the European Central Bank's (ECB) stimulus package, to the stronger U.S. dollar.


The Strong Dollar and Earnings Impact the Market

There has been much talk about currencies — from the weakening of the euro, which fell apart last week following the European Central Bank’s (ECB) stimulus package, to the stronger U.S. dollar.

Intelligent investing isn’t as simple as it sounds…

From reading whatever you can get your hands on when it comes to industries and companies‚?¶ to not being afraid to do the number-crunching valuation homework‚?¶ or knowing when to deviate from the hype and the herd, just to name a few.

It‚??s a full-time job — and that‚??s just for obvious and less-than-obvious things that go into picking a stock — let alone managing a portfolio of something between one and two dozen stocks.

If you don’t have an infrastructure built to get multiple reliable sources of information to you without having to go through it all yourself, chances are you’ll miss some things.

And this week is clear evidence that Wall Street has missed something — the impact of the strong dollar.

Make no mistake, there has been much talk about currencies —¬†from the weakening of the euro, which fell apart last week following the European Central Bank’s (ECB) stimulus package, to¬†the stronger U.S. dollar.

Before that meeting, I recommended to subscribers of my PowerOptions Trader service two trades that aimed to deliver on the expected ECB stimulus announcement.

And those two trades —¬†going long the PowerShares DB US Dollar Bullish ETF (UUP) March $25 calls and the Guggenheim CurrencyShares Euro Trust (FXE) March $113 puts —¬†did just that, and then some‚?¶

To the tune of gains of 88.46% and 90.68%, respectively, in the span of only a few days.

Back to what the market is only now realizing:¬†not only are the economies outside the United States weak to sluggish, per last week‚??s January flash PMI data, but the strong dollar has made goods and services from U.S. companies even more expensive on a relative basis.¬†That will likely harm quarterly performance for both the current quarter and the previous one.

How‚??s Wall Street waking up to this? By hearing companies from Procter & Gamble (PG) and Dupont (DD) to Caterpillar (CAT) and Bristol Myers (BMY) use the strong dollar as one of the excuses, if not the reason, for missing Wall Street expectations. Odds are pretty high that we will see more companies plead the strong dollar in the coming days.

As I warned subscribers, all the earnings reports coming in this week are causing volatility in the markets. We will hear from more than 25% and more than one-third of the S&P 500 companies and Dow Jones Industrial companies, respectively, as they report earnings.

At the Thematic Growth Portfolio that I manage for Fabian Wealth Strategies and in my PowerTrend Profits investment newsletter, we‚??ve moved to reduce our exposure to companies that have significant exposure to international markets when it comes to revenue and profit.

In the short to medium term, we‚??re focused on companies with significant domestic exposure, like American Railcar (ARII), American Water Works (AWK) and others.¬†You may be curious as to what I’m investing in with the capital returned from the trades I mentioned above.

Heading into the week, there was no doubt the valuation on the S&P 500, which was above its 5-, 10- and 15-year averages, was stretched.

Now we have more warnings of slow to no growth and the impact of the dollar to deal with. My plan is to sit on the returned cash and ride out at least the balance of the week and more likely than not keep sitting on it into next week, building my stock shopping list in the process.

Putting Option Trades Where My Mouth Is

Above, I mentioned a great options pair trade in the form of going long the PowerShares DB US Dollar Bullish ETF (UUP) March $25 calls and the Guggenheim CurrencyShares Euro Trust (FXE) March $113 puts.

From time to time, I recommend call option pair trades to PowerOptions Trader subscribers in order to deliver exceptional returns. When considering a pair trade recommendation, I tend to examine an event and look for clear winners and losers coming out of it. That‚??s right, I actually practice what I shared with you recently —¬†calendar and catalyst investing.

And as you can see (with quick-strike gains of 88% and 90%), it really can pay off if you identify the right trades.

You can learn more about my options strategies and track record —¬†and how YOU can score these kinds of big gains from the comfort of your own home —¬†here in this brief presentation.

In case you missed it, I encourage you to read my e-letter column from last week about my predictions for the ECB meeting, as well as my new options trading video. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

Upcoming Appearances

O Join me for the World MoneyShow in Orlando, Florida, Feb. 4-7 at the Gaylord Palm Resort & Convention Center. To register for free admission to the investment conference, click here or call 1-800-970-4355 and mention you are my subscriber. Use priority code 038046.

O I also invite you to attend the only event that gives retail traders hands-on access to the very same tools, technology and ideas as the best and brightest traders in the world — The Traders Expo New York!

More than 30 hours of firsthand mentoring from me,¬†Chris Versace,¬†and 70 other elite traders is just a slice of what’s happening February 28 – March 2, 2015. Here’s more of what’s in store:

  • Experience the Most Interactive Traders Expo Yet
    Unprecedented access to top traders in all markets, plus LIVE trading, product demos and more!
  • Get Exclusive Content Directly from the Major Exchanges
    Ultra-reliable trading information straight from the NYSE, CME and CBOE.
  • See the Latest Breakthroughs in Trade Platforms and Technology
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    Receive “The Top 4 Market Timing Tools for Profitable Trading”¬†instantly when you register, and “5 Things Traders Need to Know”¬†when you attend the Expo!

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Written By

Chris Versace is a financial columnist and equity analyst with more than 18 years of experience in the investment industry. He has been ranked an All Star Analyst by Zacks Investment Research and his efforts in analyzing industries, companies and equity securities have been recognized by both Institutional Investor and Thomson Reuters‚?? StarMine Monitor. He‚??s frequently published in The Washington Times and is a frequent contributor to the daily radio show ‚??America‚??s Morning News‚?Ě and ‚??America‚??s Radio News‚?Ě. He has been quoted in the Wall Street Journal, Investor‚??s Business Daily, The Street, USA Today and other publications. In addition, he can be frequently seen on television‚??s ‚??Fox Business‚?Ě show.