It has been well documented that a strong correlation exists between the AUD/USD cross and S&P 500, so what is AUD/USD chart telling us about the S&P 500 index? The cross found its top in November last year when it hit 0.94 and had since consolidated before retesting 0.94 on 4/11. The S&P, on the other hand, kept rising during the same period before peaking at 1,220 on 4/23. This is one of the many instances where currencies have served as leading indicators for the stock market. The Aussie dollar started declining from 0.94 and hit a bottom at 0.8050 on 5/26, which was the 38.2% retracement of the bull run from 11/2008 to 11/2009. It has never looked back from that point, and last traded at .9210. Similarly, the S&P 500 fell to 1,010 on 7/2, reaching the 38.2% fibonacci retracement. I believe this suggests that S&P has most likely bottomed out this year at 1,010, and I expect the index to retest the April highs at 1,220 sometime this year. I recommend buying cylical stocks (commodities, banks, consumer and housing) as they tend to outperform during the early cycle of an economic recovery.
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