Investors Beware: More Stomach-Churning Action Is Ahead

Rough seas
Rough seas

Seasick investors might want to stock up on Dramamine this week. A deluge of key earnings and economic reports promises to churn up more stomach-turning volatility, says Alan Valdes, director of trading operations at DME Securities, from the floor of the New York Stock Exchange (NYX).

Three Dow components -- Wal-Mart (WMT), Home Depot (HD) and Hewlett-Packard (HPQ) -- are slated to drop quarterly profit reports on Tuesday alone. In addition to digesting what those numbers say about consumer spending, the housing market and the tech sector, investors will have to scarf down inflation data, housing starts and the minutes of the latest Fed Open Market Committee meeting this week, too.

But the biggest market-moving waves will continue to come from overseas, Valdes says, as the financial crisis in Europe keeps washing over the greenback. "You show me where the dollar is, and I'll show you where the market is," Valdes says. "The euro is putting so much weight on the dollar that it's affecting the equity market. People are leaving that risk in equities and going to the dollar."

The currency trade has been in play for months, Valdes says, but this time around it's being magnified by the "extravagant" moves in the euro, which hit an 18-month low against the dollar of $1.24 last week. At this rate, says Valdes, the currencies will be at parity pretty soon.

"That's what's really going on," Valdes says. As long as European debt anxiety continues to make the currency and bond markets seasick, equity investors can expect stocks to be choppy, too. Says Valdes: "This volatility is here to stay."