By Jeff Clark in The S&A Short Report:

Stocks are either ready to break down and head toward the October lows - a break below will lead to a much more negative move over time - or the bulls will make a stand and rally into the seasonally strong period of November and December.

I favor the former scenario, but it could go either way. And it all depends on the U.S. dollar.

Stocks have been moving inverse to the U.S. dollar for the better part of two years now. Indeed, when the dollar bottomed last September, stocks began their nosedive. And the peak in the dollar in March coincided perfectly with the bottom in stocks.

The dollar has been trying to pound out a bottom for over a month, [but looks like it may now be ready to rally]...

The dollar broke to the upside of a bullish falling-wedge pattern on Wednesday. That event spooked the market and was largely the reason for the extended decline and temporary breakdown in the S&P 500.

The dollar was weak yesterday. It dropped back down to retest the breakout level. Not surprisingly, stocks rallied in response.

So the future of this market is entirely in the hands of the dollar. If the greenback has bottomed, stocks have peaked. If the dollar starts to fall again and make new lows, stocks will make new highs.

It's really no more complicated than that.

Crux Note: Jeff Clark is the editor of The S&A Short Report. To learn exactly how Jeff is planning to play the move in the dollar, and get access to all of Jeff's trading recommendations, click here...

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