So far—as of yesterday, that is—the dollar rally has been just a bounce. But a rising dollar has now pushed the euro, the Australian and Canadian dollar, and the Brazilian real down to a critical level. Same is true for gold, oil, and other commodities that have soared as the dollar fell.

These strong currencies and commodities are on the verge of breaking through their 50-day moving averages. If they break below those trends, it could signal—and indeed set off—a deeper correction in these assets.

Here’s the technical picture.

Yesterday—December 8—the U.S. dollar continued to rally, pushing many of the world’s strongest currencies over the last six months below their 50-day moving averages. The euro, for example, fell below its upward trend for the last eight months and the currency is moving toward a test of its early November low near $1.46. (The euro is up this morning to $1.471 at 9:30 a.m. ET.)

The euro isn’t alone in this. Other strong currencies such as the Australian dollar show chart patterns that look like they’re signaling a top.

And so do commodities such as gold and oil. Commodity prices have climbed as the U.S. dollar has tumbled so it shouldn’t be a surprise that with the dollar moving up commodities are falling lower. ETFs (Exchange Traded Funds) that track gold (SPDR Gold Shares (GLD)) and shares of energy companies (Energy Select Sector SPDR (XLE)) have moved below their 50-day moving averages and are threatening to fall below their November lows.

And, finally, the damage also extends to emerging markets. ETFs for Brazil, China, India, and Russia—all among the stock markets that have moved up most strongly in the rally since March—are all looking vulnerable to retreat.

I think these signals are worth taking seriously.

A lot of investors are nervous right now and it wouldn’t take much to push them into end-of-the-year profit taking. When the stock market is nervous, technical signals can be self-fulfilling prophecies: A chart that shows a sector is in danger of falling further can be enough to set off selling that does indeed move a sector lower.

The recent debt restructuring in Dubai and the downgrade of Greece’s sovereign debt by Fitch yesterday have also made investors nervous, unreasonably so in my book, about all emerging markets. (As well as, this time justifiably in my opinion, about all the weaker developed markets.)

And finally, Friday’s unexpectedly low job loss number in the United States (just 11,000 jobs lost in November) has made some traders who are short the U.S. dollar look to buy dollars to cover their positions in case the dollar should start to rally. That covering, of course, produces exactly the dollar rally that the traders hope to avoid. And it puts pressure on the asset classes where traders are long, such as commodities and strong currencies, since to repay their dollar loans and to close short positions in the dollar traders have to sell these assets.

I don’t see any reason to run for the exits here. The selling is likely to be limited to the year-end period. You don’t need to sell long-term positions now. You’ll note I haven’t said a think about faltering fundamentals. That’s because this move down, like the last part of the move up, has nothing to do with fundamentals. If you liked the fundamentals of a stock a week ago, you should still like those fundamentals today. No reason to sell.

But if you bought in the last few months on momentum, you’re looking at a totally different case.  If you bought an ETF or some commodity-based shares on momentum that was based on global cash flows, it’s time to recognize that the momentum is faltering and that the direction of global cash flows may be reversing for a period that could be days or weeks or even a few months. Time to think about taking your profits in momentum  plays here.

I explained this distinction between fundamental and momentum strategies—and the dangers in falling in love with momentum buys when the momentum begins to shift—in my November 20 post https://jubakpicks.com/2009/11/20/nervous-afraid-to-stay-in-but-scared-to-get-out-join-the-club-and-read-my-three-strategies-for-coping/

Also please, please, keep in mind that this is a short-term rally in the dollar. It could run for days or weeks—I wouldn’t be surprised to see it go through the end of 2009. But it is a trading rally based on an unwinding of huge global short positions in the dollar. It doesn’t have anything to do with the long-term fundamental trend in the dollar, which is still down. The United States hasn’t overnight done anything to fix its huge deficit, debt, and balance of trade problems. At some point those problems will move once again to the front of traders’ and investors’ minds and the dollar will start showing weakness again.

No long-term trend runs steadily up or down hill in the financial markets without short but significant counter-trend moves.