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Buyers pushed themselves away from the Thanksgiving dinner table after the three-and-a-half day weekend, where continued weakness in the dollar, gains in the energy complex and some concerns over Wal-Mart's (NYSE:WMT) $46.61 -2.69% November 2% decline in same-store sales gave bulls a reason to take profits.

While Wal-Mart, the world's largest retailer said overall retail sales were strong over the weekend, the 2% decline in November same-store sales was the first November same-store sales decline in 10 years, which raised questions as to the strength of consumer spending as the holiday shopping season begins.

While retailers have not yet given any final tallies on weekend sales, high-end ticket items like flat-panel TVs and computers were reportedly among those products coveted most by consumers.

ShopperTrack RTC, which compiles sales data, estimates sales rose 6% on Black Friday from a year earlier.

January Crude Oil futures (cl07f) settled up $1.08, or 1.82% at $60.32, its highest settlement in more than a week. OPEC's President Edmund Daukoru said concern by other oil ministers over high U.S. stockpiles could lead the group to further reduce output when it meets in December. Mr. Daukoru, who is also the minister of State for Petroleum Resources for Nigeria said he thought OPEC could reduce output by as much as 500,000 barrels per day at the December meeting. Since earlier this year, Mr Daukoru expressed his belief that the price of $60/barrel of oil is a "fair price."

U.S. Market Watch - 11/27/06 Close

The slide in the dollar as depicted by the U.S. Dollar Index (dx00y) 83.50 continued, hitting a 20-month low against the euro, but firming against the Japanese yen. As I've discussed, or mentioned before, there are "good" and "bad" implications for dollar weakness and strength. While dollar weakness makes goods and services in the U.S. "cheaper" for overseas consumers, that very weakness can have foreign-made goods and services costing more, thus inflationary.

One way I tend to look at the dollar's strength/weakness is to simply use it as a measure of foreign capital flows, not just a reflection of what market participants' think/believe the FOMC will be doing in the future.

In my opinion, currencies are probably one of the toughest securities to analyze, or interpret. So many different variables can impact their strength and weakness (geopolitical, country's monetary policy, country's economic strength/weakness, all relative to other countries near and abroad).

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A stronger dollar may equate to foreign capital seeing U.S. assets as attractive, thus capital/money flowing into the U.S.. A weaker dollar may equate to foreign capital flowing out of U.S. assets, perhaps a view that U.S. assets are less attractive to other investment alternatives.

Let's take a look at the U.S. Dollar Index (dx00y) on a WEEKLY interval bar chart. I will benchmark some inflection points in the dollar with the S&P 500 Index (SPX.X) in an attempt to once again make the point that "just because the dollar rises/falls, equities, or other securities (like gold, silver, various commodities, don't always trade with, or inverse the dollar).

However, today's equity market declines come just after the Dollar Index (dx00y) broke below an upward trend on Wednesday, and should not go unnoticed.

U.S. Dollar Index (dx00y) - Weekly Interval Chart

Anytime, any security begins to break below trend as the dx00y did on Wednesday and challenges recent relative lows as the dx00y does today, there are going to be some questions asked.

I could probably come up with 10 different reasons at any given time as to WHY the dollar is doing what it is doing (up, or down), but the bottom line right now is that the dollar is showing some sign of further significant weakness, and that can create "jitters" or nervousness among market participants.

Three (3) time/date intervals I'm focusing on is the week of May 7 (Sunday 5/07/06) thru Friday May 12 of this year, when the dx00y fell sharply from 85.12 to 83.92, which did have the S&P 500 Index (SPX.X) falling from 1,325 to 1,291 that very same week. Here I would tend to focus on PERCENTAGE decline for the SPX of 2.56%.

Then the two (2) dx00y inflection highs near 87.00 found the weeks of 7/16 thru 7/21 and 10/08 thru 10/13, where equal highs in the dx00y did NOT (repeat NOT) equate to similar SPX benchmarks. The point of this "benchmarking" is to instill in traders that a stock index isn't going to be directly tied with the dollar, or any currency.

Is the dollar weakness from its January highs of 92.00 to tonight's trade a reflection of a failed Fed policy? I would think the answer is "no!" Is the dollar weakness from 92.00 to tonight's trade depicting massive outflows of foreign capital that has seen the S&P 500 (SPX.X) fall during that, or any other time frame? Again, the answer would be "no!"

Currencies are complex, but the main point I brink to attention is break of trend, a break of a relative May low, and some weakness in equities just days later.

Here's a WEEKLY interval chart of the S&P 500 Index (SPX.X), and tonight, I'm going to anchor its "0%" retracement at a recent Friday closing high of 1,401.20.

S&P 500 Index (SPX.X) - Weekly Interval Chart

In recent weeks, the SPX has surged above an old "bullish resistance" trend, in fact, that took place the WEEK of 10/9 thru 10/13. I will note that it was THAT WEEK that the dx00y last saw the 87.00 level. If memory serves me correct, some dollar watchers were rather "certain" that the rise in the dollar (dx00y) was indicative that the Fed was pressed to raise rates, and the dollar's rise would bring weakness to equities. Just as "wrong" as that might have been, the next week's reversal could have been analyzed that foreign capital was exiting U.S. assets, and that too bring weakness to equities.

Confused? You might well be. And I would be too! Again, I can come up with 10 different reasons as to why the dollar's strength/weakness could signal, or lead to equity strength/weakness.

BUT IT IS THE BREAK IN TREND and a RELATIVE LOW in the dollar that has me on the alert, and perhaps other traders.

See my note regarding "Trend ~1,365" (approximately 1,365)? That would come darned close to a 2.56% decline in the SPX.X from 1,401.

Trader and investors SHOULD care about the dollar's strength/weakness, and what it CAN say about foreign capital flows (incoming, or exiting). There are additional measures such as MONEY SUPPLY that can also give hint as to where capital is flowing.

How about our QQQQ chart, and exercise of "dragging up" its retracement to a prior Friday's close, and saying "a close above has NOT seen a Friday close below."

I leave my "bull fit 38.2%" just as it has been (blue retracement), but with a higher Friday close (end of week) I'm dragging up the pink retracement to $44.65.

NASDAQ-100 Tracker (QQQQ) - Weekly Intervals

Dollar weakness? Profit taking at an old trend broken, that now serves up some resistance? RISK getting too high with the NASDAQ-100 Bullish $ ($BPNDX) from StockCharts.com now at 70% bullish? If anything, I'd pay GREATER attention to the bullish % and what it tends to say about RISK. Bulls have scored a "touchdown" and should be OFF MARGIN, and taking some profits.

Perhaps the dollar's action is a GOOD reason at this point to do just that.

If trading the "QQQQ should NOT close below...." then that level would be $42.84 from a BULL's point of VIEW. A BEAR would at least want to see a FRIDAY close below $42.94.

Some additional alerts to weakness:

The S&P Banks Index (BIX.X) 390.42 -1.19% has been showing some notable WEAKNESS in recent weeks, and that weakness is REALLY showing up in the various MONTHLY/WEEKLY Pivot Levels that institutional computers will trade off of. I've been discussing some of this action in recent Market Monitor comments at OptionInvestor.com.

Some of the weakness may well be attributed to the FLATTENING, and slight inversion of the YIELD CURVE between the 5-year Treasury YIELD ($FVX.X) and 10-year YIELD ($TNX.X), where both (see U.S. Market Watch) are at 4.538%.

This action suggests to some of economic slowing, and a Fed being "on hold" with interest rate policy.

Now throw in some dollar weakness, and equity bulls are going to be growing a bit "jittery" near-term.
 

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