SPY: Breakout or More Sideways Action

What it appears we're seeing right now is a volatility squeeze forming in the markets (SPY, S&P, QQQQ). Just from what I'm seeing on the charts is all indexes are continually moving higher and a contraction in volatility (bollinger bands tightening) . Since volatility is cyclical we should soon see a increase any day now and just judging from the trend we could see a breakout to new highs.

Another interesting developing is the market's behavior in relation to the dollar. Could this be the beginning of a break from the dollar lower/stocks higher relationship? Looks like it. As you can see from the dollar line (in red) both the dollar and SPY are moving higher in tandem. It would be quite a divergence if the market could trade higher with a stronger dollar.

The latter half of December could offer some good trading opportunities but will probably be choppy with all the confluence of action from money managers protecting and locking in their gains to traders close out positions for tax purposes to some individuals trying to chase performance and finish strong.