Starting about the midlle of July, the dollar began a rise, right at the same time commodities started to drop. It was at this time that the market began a rally that started with a massive short squeeze induced by the SEC ban on short selling financials. The rlly never really gained legs (except in the Russell 2000) and the market fell back, and the dollar started fallinfg soon afterward. It pulled back to the 50dma, then took off again. This time, the market crashed as massively leveraged hedge funds were forced to de-leverage. At this time, there was a very strong correlation: Dollar up, market down. The market tried to rally off the October 10 low, failed, and hit a new low in November. At this time, the dollar started hitting resistance and is trading in a range. A couple of points in the chart indicate a reversal might be imminent. Relative strength between the dollar/SPX is weakening, and there is a divergence in the MACD when the dollar rose but the MACD dropped. Even though price is fairly flat, MACD is dropping and indicates downside momentum. Elliot Wavers are expecting a wave 4 rally, and we may get it here if the dollar does reverse. The question here is, can Bernanke's "helicopter drops" keep up with debt destruction? And will a falling dollar and the subsequent rise in commodities squash any recovery attempts? Stay tuned.
Charts courtesy of stockcharts.com