BIG DROP IN OIL BOOSTS MARKET -- FINANCIALS LEAD ON UPSIDE -- DOW STAYS OVER 200-DAY LINE

CRUDE DROPS A DOLLAR -- GOLD UNDER $400 ... After recovering barely half of its August price decline, crude oil has fallen over a dollar today and is trading back under $43. That's giving a boost to the rest of the market. With oil falling, energy shares are seeing some profit-taking. Chart 2 shows the AMEX Energy Select SPDR backing off from chart resistance at its early August peak. Gold stocks are also trading lower today as gold has slipped back under $400. The Gold/Silver (XAU) Index fell to a two-week low today after failing to clear its 200-day average last week.

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FINANCIALS CONTINUE BULLISH BREAKOUT... Reduced inflation fears from falling oil prices are giving a big boost to rate-sensitive financial shares. Financials are the day's biggest percentage gainers. Chart 4 shows the AMEX Financials Select Sector SPDR hitting a new recovery high which is building on last week's bullish breakout through its June peak. Its relative strength line has been rising since July. It's usually a good sign for the rest of the market when financials are leading it higher. Banks have been the big leaders in the sector. In today's trading, brokers are playing some catch up.

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DOW STILL OVER 200-DAY AVERAGE... Last Thursday's uspide penetration of its 200-day average was a bullish development for the Dow. After breaking that resistance line, however, it's important that the Dow stay over it. After dipping on Friday, the Dow is rising again today (see arrow). That raises the possibility that the 200-day line may now be acting as support. The ability of the Dow and the S&P 500 to stay over that former resistance line is very encouraging (see Chart 6). The fact that this is happening in the face of a short-term overbought condition is also impressive. Now all we need is some decent volume.

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