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Dollar Hitting Bottom As Stocks Rebound?

Is the U.S. dollar bottoming? CNBC's Rick Santelli thinks it might be. The dollar has been on a downhill slide against the euro and other currencies for weeks now. As of the end of last week, the dollar lost 7.7% against the euro since the beginning of the year, and it continued to move lower overnight. But it did a reversal this morning, and that makes Santelli think it's time to look at the charts.

"By making a new all-time high, like the euro did overnight, and then selling off, it would be a key reversal if it closes at current levels," said Santelli. That is because the current level is below Friday's low $1.4242 per euro. "The trend is then confirmed if it happens on a weekly level. For instance, if we close this Friday below the closing low of last week, then the sell signal on the euro gets stronger. Technicians will look for that trend on a monthly basis too," he said.

"It's a key reversal," said Santelli, who is a technician in his own right. The euro hit an all-time high overnight of $1.4348. The dollar index, a basket of currencies, shows the same pattern, .

Santelli says the technical pattern also matches what he thinks is happening on a macroeconomic basis. He said the growth of the global economy may have been overstated. If that's the case, the U.S. is then considered to be too weak a part of the picture. "If the market has overpriced weakness in the U.S. and overpriced strength in the global areas, there will be adjustments," he said.

The G-7 warned this weekend that the U.S. suprime crisis has the potential to slow global growth. Also, Treasury Secretary Hank Paulson on Friday told reporters covering the G-7 that he supports a strong dollar that is determined by economic fundamentals and markets, a slightly modified message. The message is subtle too in that Paulson could be implying he expects market forces to straighten out the situation before the dollar becomes too weak.

"European central banks are going to have to make adjustments that are going to be real dollar friendly," Santelli said, adding the ECB now may drop its bias toward raising rates and stand pat.

"That's going to put a bottom in the dollar and remove a positive for stocks," he said. One bright spot in third quarter corporate earnings has been the positive impact of a weak dollar on multinationals' foreign sales. Kimberly Clark, for instance, said the weak dollar helped its profits when it reported today.

Stocks Shake Off the Blues
Bargain hunting in financials and buying in tech is helping Wall Street beat back the blues. Stocks turned positive across the board at midday, and the market is stablizing, as many traders expected this morning. Some of the biggest losers are now attracting the dough. Check out the home builders. It smells like short-covering behind the lift in those stocks. Hovnanian is up more than 9% and KB Homes up more than 6%.

Peter McCorry of Keefe Bruyette said Friday's sell off seems like it was overdone. "There was no black Monday," he said. McCorry is not alone in that sentiment. Traders said there was a real fear, superstitious or not, that today could be a "black" Monday like 1987 because Friday's sell off came on the twentieth anniversary of the stock market crash. "That kind of fed on itself," he said.

McCorry, who trades banks, also said everyone was watching that bank index this morning which turned positive as buying picked up in financials. The index was down eight sessions in a row and if it declined today, it would have been the ninth, a record in the life of the index, which was launched in 1993.

"Nobody's out there crushing anything. It's more like wipe your brow and we made it through another day," he said. Traders are watching American Express and Apple earnings after the bell.

The top S&P sector right now are the financials, then consumer discretionary stocks which include stocks like Kimberly-Clark and Costco .

The biggest loser is the energy sector, down more than 1.5%. Crude oil is selling off today as traders have become seemingly more worried about demand and a slowing U.S. economy than global military tensions. MF Global senior vice president John Kilduff said oil is falling on "the move of the dollar and some profittaking."

The November futures contract for crude expires at the end of today's trading session. "I wouldn't be surprised to see crude oil positive on the day by the end of our sessions," said Kilduff, a CNBC contributor.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.