If you didn’t sell in May, what are the chances that June will turn out to be better for stocks? Last week’s technical action ended as a positive for the bulls and should be encouraging to those investors who are still holding stocks or want to get back into the market.

Friday’s close was especially noteworthy as a late rally drove the S&P 500 through its 50-day moving average (blue line) to within a point of the resistance line at 1,332. A close above that line would reverse the prior breakdown and pop the index through the bullish flag that has stubbornly resisted all rally attempts for over a month.  The internal indicator to watch in this situation is the Moving Average Convergence/Divergence (MACD) since it often issues a signal just before a major move. Note that it is arching up, which is a positive.

Last week’s three-day market rally was the direct result of renewed weakness in the dollar as illustrated by UUP’s sudden reversal away from the bearish resistance line at $22. And its break on Friday through the support at both the 20-day and 50-day moving averages confirms that the near-term trend for the dollar has again turned to down. Note the new sell signal from MACD as the red (fast) line crossed through the blue (slow) line.

The significance of the buck’s reversal down is shown by this weekly chart indicating the depth of the resistance at $22 for the PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP). The support line, which started in 2007 (red dashed line), was broken in March, and now becomes a very formidable resistance line. 

A clear break from the bullish flags of the major indices is required to fully confirm a turn for stocks. And the implications of another dollar breakdown would also have a bullish impact on energy, precious metals and other commodities. During the weekend, an interest rate increase by Russia, along with China’s tight money policies, could be the signal that the dollar is again ready for a major fall.

For one stock to buy now, see the Trade of the Day.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.