Earlier this week, I wrote to you about the long-term state of the dollar and how that direction will continue to be downward.

With that said, the dollar will have some nice bear-market rallies along the way. One of these could be coming fairly soon.

There are several things that I’m watching, and I don’t like what I’m seeing.

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First, the Russell 2000 Small Cap Index continues to roll over and head south. If small corporations out there aren’t making it, we’ve got trouble coming.

Second, the New York Stock Exchange’s advance/decline line is starting to turn down once again.

Third, the Nasdaq’s advance/decline line is starting to turn south, too.

These are not good when one is looking for more upside in the U.S. stock market. Therefore traders and investors alike are going to have to tread cautiously from this point in stocks.

How this relates to currencies is that if stocks fall again in the near term, it will give the dollar a boost for as long as the down draft lasts.

I want to make it clear that the dollar would not be going up on good fundamentals but rather as a defensive measure (since it’s the world’s reserve currency).

So don’t confuse an uptrend for good fundamentals.

This is why I’ll be playing both sides of the dollar’s moves in my currency newsletter, the Money Matrix Insider.

As long as stocks hold up, I’ll have my fellow traders in some of the finest foreign currency plays out there as we protect them from the fall of the dollar.

But when the tide turns and stocks head south on major corrections or on a continuation of the bear market, I’ll be able to play the defensive posture of the greenback against those currencies that would suffer the most amidst a stock market selloff.

So keep your eyes open because the risks to your stock portfolio just got greater after this sizable rally that we’ve had. Protect yourself. Decrease your use of margin, and make sure you have stops in place on your stock portfolio.