Why GE, 3M, United Technologies Will Wither Under a Strong Dollar

NEW YORK (TheStreet) -- The stronger dollar will hurt earnings of U.S. multinational companies, including three Dow components: General Electric  (GE) , 3M (MMM)  and United Technologies  (UTX) . And given the risk, investors should consider booking profits on these stocks ahead of third-quarter earnings in October. Here's why, and how you can protect yourself.

Sales made in foreign currencies must be converted into dollars. A weaker foreign currency converts to fewer dollars, reducing revenue and earnings per share. The strong dollar means more U.S. companies will miss analysts estimates when third-quarter earnings season begins in October.

Read More: Investors Make No Mistake -- Larry Ellison Still Runs Oracle

These daily and weekly charts below illustrate the currency risk for the euro vs. the dollar and explain the correlation between a weak euro and lower U.S. stock prices.

The "Death Cross" Chart

Let's look at a price pattern for the euro vs. the U.S. dollar on the daily chart below.

 

Courtesy of MetaStock Xenith

The euro had been trading above a rising 200-day simple moving average (green line) until July 2, when the third quarter began. The break below the 200-day provided a warning that the rising trend for the euro had shifted to a declining trend. The declining trend for the euro was confirmed when the 50-day simple moving average (blue line) declined below the 200-day on July 7.

This negative moving average crossover is known as a "death cross" to technical traders.

If you liked this article you might like

Robots Might Be Biggest Obstacle for Stock Market Bears

This Simple Indicator Is Hinting at an Imminent Stock Market Plunge

Investors Waiting for Disaster?

Don't Rely on Old Dow Theory Alone When it Comes to These Sectors

This Pullback Is a Perfect Buying Opportunity