Will the Buck Confirm a New Bull Market?

Investors rested yesterday after the huge advance on Wednesday, causing stocks to trade flat for most of the day. Neither a better-than-expected ISM manufacturing number, a worse-than-expected initial jobless claims report, nor a decrease in China�s PMI manufacturing figure had much impact on the day�s results.

The Dow Jones Industrial Average fell 0.21%, the S&P 500 lost 0.19% and the Nasdaq gained 0.22%. Volume fell to 855 million shares traded on the NYSE and 463 million on the Nasdaq. Decliners led advancers on both exchanges by about 1.5-to-1.

The S&P 500, along with the other U.S.indices, put on a show of strength on Wednesday as it vaulted through its 50-day moving average and now challenges the resistance line of a right triangle at 1,265. A pullback should receive support first at 1,220, and then the 50-day moving average (blue line) at 1,208.

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We may be miles apart from Germanyand China, but when it comes to stocks these charts illustrate that there is a global cohesion. Note that each chart has formed a triangle with support approximately at the midpoint of the formation.

Also note that the MACD internal indicator of the S&P 500 and the German DAX have flashed buy signals, and that China�s Hang Seng�s fast line (red) of its MACD is arching sharply up and very close to issuing a buy signal. The Hang Seng, it appears, is slightly behind the other indices but gapped higher yesterday in an attempt to catch up.

The world�s currency for international settlements is the U.S. dollar. After three months of dollar strength and general stock weakness, the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) has pulled back slightly from its bearish resistance line (red dash) just over $22.40, but has found support at its 50-day moving average (blue line) at 21.92.

It is in an intermediate uptrend, and if it can close over the red dash line will confirm a new bull market. But a close under the blue line and the red dash support line should result in a test of its 200-day moving average (red line) at $21.60.� Because of the inverse nature of stock to the dollar, this would likely result in an upward test of the resistance at S&P 1,265, as well as the resistance lines of the DAX and the Hang Seng indices.

Conclusion: Traders and investors alike should focus on the dollar�s daily moves since it is the key to the future direction of the world�s stock markets. (Whichever direction the market goes next, my colleague, Joe Burns, can help you capitalize on it.)