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.
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.