Happy Tuesday everybody. Well, we're no closer to any meaningful clarity about which direction stocks are going to move next, but there was plenty of telling activity from other instruments like bonds, commodities, and the U.S. dollar. In fact, that's going to be our focal point today... the renewed implosion of the U.S. dollar and what the ripple effect of that move may be. SmallCap Network's Premium Advice - Elite Opportunity Actionable short and long-term NASDAQ and NYSE stocks poised for index average beating returns. Experienced daily in-depth analysis of major indices and their ETF's for short-term trading profits. Earnings options plays. Pinpoint analysis for trading precious metals and oil. Currency, bonds and much more! Get in the know now by getting on-the-ground trading and investing advice to make you more money. 30-Day Money Back Guarantee. Click Here and Sign-Up Today! I'm sure you've heard the expression "Be careful what you wish for because you just might get it." It's sage advice for those who have an interest in the stock market too. That was the first thing I thought of as I read the headlines today explaining how San Francisco Fed President John Williams opined he wished the Federal Reserve would start to ratchet up interest rates a "bit earlier" than it was planning on. I personally found the remark more than a little curious, in that there's absolutely no real clarity on when the Fed is going to start pumping up interest rates; "earlier" than what? Still, I do agree with his premise that it's going to be easier to raise rates very gradually rather than be forced to shove rates up in a hurry once inflation is allowed to reclaim the 2.0% area. And, Williams may be getting his wish, if the action from the U.S. Dollar Index is of any interest to Janet Yellen. We mentioned last week how the U.S. Dollar Index's dip below the 100-day moving average line (gray) and slide under a floor at 94.40 was likely the beginning of a much more significant pullback... even if the chart bounced a bit in the meantime. The chart did end up bouncing, but all it took was a brush of the 100-day moving average line to rekindle the selloff. It's a possible prod for inflation since the weaker the dollar's buying power gets, the more expensive things become. Although the dollar is still "up there", the sheer speed of the U.S. Dollar Index's decline could spook the Fed into taking quick action. The index still needs to close below 94.40 one more time to seal the deal on the budding pullback, and it would be even more convincing if it broke below last week's low of 93.85. But, the damage done so far has been pretty substantial in its own right. I think we can take it as a clue things are going to get at least a little worse for the greenback before they get better. The natural extension of the discussion of the U.S. dollar is a discussion of bond prices and bond yields. Read 'em and weep. Yields actually hit six-month highs today before peeling back, and the sheer size of the intraday reversals for bonds and yields implies we may headed into a decent countertrend of the trends we've seen since early April. It wasn't a bigger-picture kind of reversal from bonds or yields though. Our take: We get what Williams is saying about keeping the mere risk of inflation in check, and we also understand why the market is preemptively pushing interest rates higher even though the Fed hasn't given any clear indication a mid-year rate hike is a foregone conclusion. But, given all that we can see, we suspect the market itself - and Williams - have become a little too hawkish too soon. Inflation is still pathetically low. Once we get to (and a little past) the halfway point of the year and it's clear that inflation is still tempered and economic growth is still just tepid, that's going to take a lot of the wind out of the sails of bonds' downtrend by working against interest rates. In other words, when all is said and done we think the Federal Reserve is going to push rates upward later rather than sooner. The rise in yields now is apt to be undone over the course of the next few months as the market makes the adjustments. At the same time, low inflation works in favor of the dollar, so we also think the dollar's current downtrend - though far from over - is going to remain limited in the grand scheme of things. The dollar's dip is more of a "when?" than a "where?" issue. Given all the factors we can get our hands on now, we'd be surprised to see the dollar continue losing ground past the third quarter of the year.... if that. It's admittedly a tricky puzzle, as growth, inflation, exchange rates, and inflation can all work for or against one another, depending on the situation. The trick is finding the right balance. We think the modest economic growth in the cards for the rest of the year is going to keep inflation - and therefore interest rates - in check, setting up some key multi-week turnarounds for all the charts we showed you above. The market says it doesn't agree right now. We'll see. OK, we've thoroughly beat that dead horse. Let's move on to a look at the market. And the Beat Goes On No surprises today. As we've seen umpteen times since February, the market strayed a little too far off-trend and traders were quick to bring stocks back to the middle-ground. This time they had a little help from a key floor for the S&P 500. None of it changes the fact, however, that the market is running out of room to maneuver and is going to have to break one way or another soon. The chart of the S&P 500 is what it is. Right on cue, the rising support line (dashed) that extends back for weeks along with the 50-day moving average line (purple) both sparked a turnaround today when they were tested by the S&P 500's low of 2085.57. Unfortunately, this doesn't really change anything. We were trapped between a rock and a hard place before, and now we're still trapped between a rock and a hard place. We still basically think the undertow is bearish, not just for TRIN-based reasons we explained yesterday but also just because this is a slow time of year and stocks are overvalued. Like we've said so many times of late though, it's going to take a decisive break under a thick layer of support around 2080 to jolt the market into such a downtrend. The good news is, the S&P 500 is running out of room. The issue is going to be forced soon now that we're almost to the tip of the wedge. Stick around, 'cause it could happen by the end of the week.