The U.S. dollar is setting up for another move higher.

Traders should pay attention. Because a bullish dollar is bearish for the stock market.

We only need to look at the action of the dollar in September for proof of that.

Look at Wednesday’s chart of the Invesco DB U.S. Dollar Index Fund (UUP)…

When we looked at this chart in late August, we noticed a potential bottoming pattern. Sure enough, the dollar bottomed at the end of August – which coincided with a top in the S&P 500.

And, as UUP rallied above $25.50 last week – a gain of 2.3% in three weeks (which is a MONSTER move for a currency) – the S&P 500 fell nearly 9%.

Of course, the stock market has bounced back a bit this week. And, that has coincided with a decline in the U.S. dollar.

Now, though, it looks to me like the dollar is gearing up for another bounce. You see, the rally in September caused the dollar to pop above all of its various moving averages. And, it pushed the short term 9-day (red line) and 20-day (green line) exponential moving averages (EMA) above the 50-day moving average (MA – blue line).

This sort of “bullish crossover” often leads to an even stronger move higher.

So far, it looks like the recent weakness in UUP is just a simple pullback to retest the former resistance level (the horizontal blue line) as support. That often happens following a “breakout” move.

UUP could fall a little more over the next day or two. But, with the moving averages now in a bullish configuration – with the 9-day EMA above the 20-day EMA, and the 20-day EMA above the 50-day MA – the odds are high that support will hold, and UUP will bounce.

And, as we saw in September, a bouncing dollar is bearish for the stock market.

Best regards and good trading,

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Reader Mailbag

In today’s mailbag, Jeff Clark Trader member David leaves a grateful note to Jeff…

I just wanted to let you know I’ve made over $2,000 following Jeff’s information since my subscription started. Thanks.

It seems like he’s the only one who has a pulse on the market.

– David

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