Welcome to the weekend, friends and fellow traders. And, you probably don't need me to tell you it was a fantastic week for the market, with stocks snapping a three-week losing streak and seemingly jolting themselves back into an uptrend. Do we take the clues at face value, knowing there's a valuation problem on the horizon? I think we have to trade what we see, rather than what we think we should see. So, yeah... Friday's strength rekindled the bigger uptrend, and we'll have to assume this is the shape of things until we have clear evidence it isn't. SCN Elite Opportunity Free Alerts Get premium select stock picks via email and mobile text alerts from our SmallCap Network Elite Opportunity Team. It's 100% FREE! No strings attached and no credit card required. Click here to sign-up today! We'll flesh it all out below, but the first thing I want to do today is dive deeper into where the U.S. dollar has been, how it got there, and where it's going now in the wake of the Federal Reserve's comments released on Wednesday. Almost needless to say, investors were a little shocked by how un-hawkish the Fed had turned over the past few weeks. Thanks for Nothin', Janet I'll confess I was ready to think - and write - something slightly different today, but then had to rethink things a little after reading my copy of the Elite Opportunity newsletter. As is always the case, John Monroe got me thinking about some important ideas I was trying to ignore. Since two heads are (usually) better than one, I want to combine his thoughts with mine. In some ways they're opposing ideas, and in some ways not. Together though, I think we can all get a really good handle on things. First and foremost though, let's look at what really sparked the dollar's implosion on Wednesday, and set up today's bearish follow-through for the greenback. While we all know the Fed posts a Fed-funds rate outlook every few months, what's not touted as much is the fact that the Federal Reserve also publishes an image of exactly where each of the Fed's governors thinks the Federal Reserve's funds rate should be at various points in the future. The chart below is this image that came out with December 18th economic outlook. There are seventeen blue dots for each year - one dot for each voting member of the FOMC placed where they think the Fed funds rate will average out for that year. As you can see, most of the governors were sure the Fed's primary interest rate would be above 2% by 2016, with a steady increase over the course of 2015 from the current rate of 0.25%. Here's the dot-plot published just a couple of days ago. With just a passing glance it looks about the same, but when you really start to look closely at where the dots are placed by year, you can see what all the buzz (and the dollar's dip) was all about. The majority of the FOMC voting members no longer think the Federal Reserve rate will move to an average of around 1% this year and above 2% next year. Now the committee expects its primary rate to remain noticeably below 1% this year, and below an average of 2% in 2016. It's a small numerical difference, but a huge difference in terms of the message it sends. Given the U.S. Dollar Index's crazy 25% rise since June of last year, I have to think forex traders and other speculators were not only expecting all those dots to at least remain level with December's dot-plot, but expecting an upward shift across the board. Instead, the dots shifted lower, shocking the currency exchange markets. And just how bad was the jolt? Here's the daily chart of the U.S. Dollar Index. You can see for yourself. The broad uptrend is still technically alive, but the height of the last three daily bars for the index suggests there's a major stirring right now.... the kind you often see when the tide turns. We do want to talk about that more, but first, may I just point out that in so many ways, Janet Yellen and the FOMC largely caused the dollar's wild runup and now its volatile meltdown? They didn't cause all of it, but they caused a lot of it, talking for months about how rates could and should rise in the foreseeable future. Right or wrong, the FOMC and Yellen have to know the currency and equity markets listen to and try to predict what the Fed's policy changes are going to look like. Well, Yellen has been vaguely talking change via higher interest rates for a while now. In fact, the chatter started in the middle of last year, right around the point when the U.S. dollar started its monster-sized ascension. Here we are nine months later, and not only have rates not been edged higher yet, the outlook for rising interest rates is now being reeled in by the Fed. Like I said, it's not entirely the Fed's fault. Things change, and the FOMC has to adapt. On the flipside, the Fed really doesn't need to start dropping hints unless it's sure it can follow-through on them. But I digress. What does this mean for the U.S. dollar now? My first thought was, the shape and context of this week's bearish reversal of the U.S. Dollar Index is likely to send it back from whence it came in the middle of last year. Then I read today's edition of the Elite Opportunity, and John Monroe made some really good points. I can't get into all of them here, but in a nutshell, I think he's right - the dollar isn't on track to implode. Pull back? Sure a little, but not implode. See, in simplest terms, the things that drive the greenback higher are still basically intact. Greece is still infecting the whole Eurozone, our inflationary environment hasn't changed one iota in the last couple of months, and the U.S. economy is - amazingly enough - the only one out there right now that's compelling. The dollar simply can't move a whole lot from where it is now. It can move a little, and I think it's going to move a little lower in the foreseeable future. It's not going to stumble a great deal though..... not enough to undo all the problems its sky-high value is causing. And, though the Fed through us for a loop on Wednesday, the bigger interest rate risk from here is still an expectation of higher interest rates rather than lower ones. Realistically, the U.S. Dollar Index will find an inflection point at 94.34, where it went through turbulence in early 2015. And, there's a Fibonacci retracement line around 92.45, where it also went through some turbulence around the beginning of the year. Either line could prove to be a big technical, psychological, and structural floor for the dollar. That would be a respectable lull, but not a game-changer for the adverse impact the dollar is having. Worse, those levels may even end up serving as springboards for the index's rebound. In other words, while I still contend we're due a short-term dip from the U.S. Dollar Index, I think John's right in the grand scheme of things - the dollar's got upside left to dole out once this dust settles. Now, while I gave you a taste of what John said, I'll also tease you by telling you what else John talked about today with his thoughts on the dollar. Since they're all intra-related, Friday's Elite Opportunity newsletter looked at charts of oil, gold, the dollar, and bonds, with Monroe's thoughts on each of them. It was the most complete simultaneous look at all these instruments I think I've seen in a long time. And, they all matter. I wish I could tell you more about what John had for readers today, which was actually an op-ed about the Fed's recent handling of things as much as it was a look at bonds and commodities. But, I can't. I've probably already said too much. I'll just say EO subscribers got a real treat today. If you're not an Elite Opportunity member, you missed a pretty good discussion and missed a great, realistic forecast. Here's how to not miss the next one, or cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/ Your membership to the Elite Opportunity service also gives you access to the newsletter archives, so you can actually join today and still go back and look at today's edition. OK, So Maybe the Bulls Are Ready to Roll After All We've already gone a little long today with our rant, so we'll keep this market chat short and sweet. Remember yesterday when I said it would be unlikely the NASDAQ could break above a long-term resistance line? I guess my doubt was misplaced - it happened. The NASDAQ Composite isn't what I want to focus on today, though. I think we can get a lot more out of a closer look at the S&P 500. So, here it is.... the daily version of it anyway. The bulls got back on their horse today to follow-through on Wednesday's bullishness, pushing up and off of the 20-day line to make it happen. Volume was pretty big too - the second time in three days we've seen big bullish volume. Although we're getting close to a peak at 2118, I can't help but think a test of the upper Bollinger band at 2136 is in the cards. Zooming out to a weekly chart of the S&P 500 we can see there's plenty of room to keep rising before the upper edge of that rising trading range is met. [This long-term, bullish trading range hasn't gotten enough credit, huh? It was a big part of the reason the index bounced when and where it did last week.] We can also see that while the VIX is low, there's a little room for it to move lower. I know today was an options expiration day, which has the potential to skew the market and the VIX. Honestly though, I don't get the feeling today was skewed. It seems like Friday's bullish action was going to materialize no matter what, because the masses are of a bullish mindset right now. I still contend there's a valuation problem in front us. The S&P 500's trailing P/E as of today is 18.7, and the forward-looking one (2015) is 17.7. But, like we've said a few times now, the valuations won't matter until the majority of investors decide they matter. In the meantime, don't fight the tape. That's all for the day and the week. Everyone have a great weekend. Go watch some great basketball. I don't know about you guys and gals, but my NCAA tourney bracket is pretty well busted up already. It's a good thing I handicap the stock market a lot better than I handicap college basketball.