This continues to be an intermarket relationship that I watch: of late, the U.S. dollar has shown strength, even as stocks hover near bull market highs. We've seen new 20-day highs expand to over 1400 on Monday, with small caps picking up some relative strength and solid action in the advance/decline line.
During much of the bull move from March, we saw strong stocks accompanied by a weak dollar, as low interest rates in the U.S. pushed traders and investors into risk assets. That regime appears to have shifted, as more favorable economic news has been accompanied by firm stocks and a firmer dollar, with rates on 10-year Treasuries now above 3.6% (up from 3.2% at the end of November).
If so, that should augur well for bulls early in 2010.
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