Stocks have been moving sideways all year after a blow-off top of late January 2018.

But the long sideways correction bodes more for a final break up ahead, not a major breakdown.

At least not yet…

Emerging markets and China have crashed about 20%, and may have already peaked. This created a potential divergence with developed country stocks, along with foreboding a larger crash starting in the next year.

Meanwhile, 10-year Treasury yields broke above a downward trendline for the first time since 1989, but have pulled back, again, towards that line. It doesn’t seem to have any particular direction at the moment…

The markets are confused. And even more so with the growing trade wars.

The dollar is a major factor in all of this. We’ve been watching the greenback carefully…

The dollar hit a new high following its major rally from all-time lows in January of 2008 at 71.

Then it hit 104 level at the end of 2017. That makes for a 46% rise, and it has continued to be the best major currency since the 2008 financial crisis.

It dropped down and made what looked like a clear low.

Then broke above the downward trendline into the correction lows of 88 in late February, and rose as high as 95.5.

But it’s now starting to stall again.

There’s a potential reverse head-and-shoulders pattern that could see the right shoulder break down back towards 91 one more time. A breakout above 96, moving to around 102 or 103, and perhaps retest the 104 highs of late December, is likely to come.

That would be adverse for gold, commodities and emerging markets that are already tanking.

Commodities trade in dollars, making them to go against…

It’s the same with emerging markets…

It’ll also be a bit adverse for U.S. exports and large-cap stocks…

A pullback first towards 91 will give gold a break, just as it’s testing important support around 1,240.

So, you can see how important this indicator is…

And we’ll continue to monitor.

My target is around 120 for the dollar in the next year or so as it corrects its massive undervaluation from the long bear market of 1985 into early 2008.

At that level, I’ll be more neutral on the dollar. A rise to that level is likely to be the sign that we’re in the deleveraging process.

The dollar is the safe haven during times like that, just as it was in the second half of 2008 during the worst of the last crisis.

That’s when gold, commodities, real estate, and stocks all tanked together…