How stocks handle the bounce in the US dollar could be a sign of strength for the market and a sign that the January rally can last. The US dollar rose in 2022, with the dollar index reaching a peak of 114.78 in September. At the same time, stocks have sold off due to the strength of the dollar, its impact on US Treasury results and what it means for companies with a global footprint. But since September, the dollar index has declined and is now approaching a range that could provide support for the S&P 500. “DXY is showing strong fatigue based on the weekly candle session, and is a long-term support around 100-102,” wrote Jonathan Krinsky of BTIG in note Thursday. “While we doubt it, if the market can slow down the bounce in the dollar in the coming weeks, it will be a bull case.” History shows how big moves in the dollar can affect the entire stock market. CNBC PRO looks at the five biggest monthly gains in the Dollar Index over the past five years, and the S&P 500 posted significant losses in all but one. If the dollar bounces and stocks continue to make new gains, it could be a sign that the rally has legs. The dollar index nearing 100 is a key level that many technical analysts are watching – it was named as one of the big numbers for 2023 by Oppenheimer. When measuring the impact of commodities, currencies and interest rates on stocks, it is not always the strength or weakness of the asset, but how stable it is over time that matters, said Ari Wald of Oppenheimer. That’s why the dollar settles in a round number and stays in an important range. “The stability of the domestic market should create a bullish environment for the stock market in the months to quarters,” he said. Of course, relying on historical correlations can be difficult because they break at times, according to Katie Stockton, managing partner of Fairlead Strategies. Still, he has also watched the main corrective phase of the dollar and every DeMark indicator sees an active signal in the dollar index that flashed on January 13. .DXY 1Y line DXY YTD dollar,” he said, adding that this would signal a change in sentiment about the dollar. If the dollar rises, positively correlated treasury yields will also get a lift, which could be a headwind for equities in the near term. However, if the dollar bounces, yields rise and equities do not react negatively, it could be a good sign of strength, he added. “I’ll look at it as a positive,” Stockton said.