BLUE CHIPS RECOVER FROM EARLY LOSSES ON STRONG VOLUME -- SOX WEIGHS ON NASDAQ -- PLUNGING BOND YIELDS BOOST FINANCIAL SHARES -- CONSUMER DISCRETIONARY LEADERS -- APPLE SOARS

BLUE CHIP INDEXES REVERSE EARLY LOSSES... The stock market had a lot of bad news thrown at it today. Intel gave a weak quarterly report last evening. An extremely weak February jobs report this morning caused early selling of stocks. By day's end, however, the blue chip averages had reversed earlier losses to close higher on rising volume. Big board advancers outpaced big board decliners by a two to one margin. Chart 1 shows the S&P 500 SPDRs closing just shy of a new high for the year. Friday's volume was the heaviest since late January. The S&P 500 spent February consolidating on light volume. Today's combination of higher prices and higher volume suggest that a new high is imminent. Chart 2 shows the Dow Industrials Diamonds bouncing of their 50-day moving average. The Nasdaq was the only major average to close in the red. Chart 3 shows the Nasdaq 100 QQQs failing to close back over their 50-day average. Selling in the the SOX Index today weighed on the Nasdaq market.

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INTEL WEAKNESS HURTS SOX INDEX... The Semiconductor (SOX) Index closed lower today. That obviously weighed on the entire technology sector. The main drag on the SOX was Intel. Chart 4 shows Intel dropping today on rising volume. Last night I talked about the need for for Intel to climb back over the 30 level to reverse its recent downturn. Obviously, that didn't happen. Although the chips were the weakest part of the market, there were a lot of group winners.

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INTEREST RATE SENSITIVE STOCKS SURGE... Today's plunge in bond yields gave a boost to interest-rate sensitive stock groups including financial services, regional banks, homebuilders, REITS, and utilities. All of those groups hit new 52-week highs today. Chart 6 shows the new recovery high in the AMEX Financial Svs IShares today. Its relative strength line turning up at the start of January. Financial stocks have been outperforming the S&P 500 over the last two months in the apparent belief that long-term rates would stay flat or start to fall further. They were proven right today in very dramatic fashion as long-term rates plunged to the lowest level in eight months. The drop in bond yields had another important ripple effect today. It caused a sharp drop in the U.S. dollar which pushed gold and oil higher. Gold jumped $8.40 to $401, while crude climbed 61 cents to close over $37 for the first time in a year. Gold and energy stocks were very strong today. Sectorwise, the strongest sector on Friday was Consumer Discretionary stocks which also a 52-week high today as shown in Chart 7

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CONSUMER DISCRETIONARY LEADERS... Four out of the top five S&P 500 gainers were in the Consumer Discretionary sector including Maytag, Countrywide Financial, Pulte, and TJX. All four stocks hit new fifty-two week highs and are symptomatic of recent money flows into housing-related and retailing stocks which benefit from falling interest rates. All three stocks shown below rose on impressive volume.

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APPLE SOARS... With the technology sector acting as a drag on the market, it may come as a surprise to find out that Apple Computer was the day's top gainer in the S&P 500. The daily chart shows the computer maker surging to a new 52-week high today on massive volume. Its monthly bars in Chart 12 shows that Apple is on the verge of reaching the highest level in more than three years.

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Chart 12

WEAK JOBS REPORT A MIXED BLESSING... Today's weak job report was a shocker. It's weakness, however, is a mixed blessing. It's a potential negative for the economy since it erodes consumer confidence. At the same time, its negative economic message pushed bond yields sharply lower. Lower interest rates are good for the economy. That's probably why the stock market recovered today led by rate-sensitive stocks. But there's more. Lower interest rates keep the dollar weak. A weak dollar is bullish for commodity markets. That was seen in today's jump in most commodities. In the past, higher commodity prices have produced higher interest rates which helped stall commodity rallies. This time does seem to be different, which suggests that global deflationary pressures may still be at work. The bottom line is that the stock market doesn't have to worry about rising rates anytime soon. That should be a good thing. It should also be a good thing for commodity investments.

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