NYSE COMPOSITE INDEX HITS NEW RECORD - SMALL STOCKS ARE PLAYING CATCH UP -- COMMODITIES AND THEIR STOCKS CONTINUE TO BOUNCE -- SO DOES CANADA -- LATIN AMERICA BOOSTS EMERGING MARKETS

NYSE HITS NEW RECORD ... The market passed one test today and has another one right behind that one. Chart 1 shows the New York Composite Index clearing its May high to reach a new record. That puts it in upward sync with the Dow and the S&P 500. The next important test will come in the Nasdaq market. As I pointed out on Friday, the Nasdaq Composite is nearing a test of its May intra-day high at 2378 (Chart 2). It's still more than 100% from its old record high, but it's an important test nonetheless. The relative strength ratio below Chart 2 shows that the Nasdaq has actually been rising faster than the broader market since August.

Chart 1

Chart 2

SMALL STOCKS ARE PLAYING CATCH UP ... Up until now, the market rally that started in August has been pretty much a large cap party. Small and midsize stocks have been left behind. That appears to be changing. The daily bars in Chart 3 show the S&P 600 Small Cap Index having broken through its summer highs to reach a new five-month high over the last week. It's still below its May peak, but is heading in that direction. The SML:SPX relative strength ratio below the chart has broken a five-month downtrend line. That means that small cap stocks are starting to play catch up to bigger stocks. That also suggests that the market rally is broadening out which is a sign of strength.

Chart 3

ENERGY STOCKS LEAD COMMODITY HIGHER ... On Friday I showed the Energy SPDR (XLE) bouncing from chart support along its June low. I also shows crude oil starting to bounce from chart support formed during the first quarter. Chart 1 shows the XLE breaking through its late September high today to turn its short-term trend higher. The reason I overlaid the XLE (daily bars) and crude oil (black line) is to show that the XLE has a history of leading turns in the commodity. The August peak in the XLE failed to confirm a new high by the commodity and both fell from there. During October, the XLE failed to confirm the eight-month low in oil. That suggests both are due for an upswing. Precious metals and their stocks are continuing to see new buying as well. Silver is leading the precious metal rebound.

Chart 4

SILVER ETF EXCEEDS 50-DAY LINE ... The streetTracks Gold Trust Shares (GLD) continue to bounce off their June low (Chart 5). Silver, however, is doing even better. Chart 6 shows the iShares Silver Trust (SLV) moving above their late September peak and 50-day moving average. The relative strength line below Chart 6 shows that the silver ETF (SLV) is rising faster than the gold ETF (GLD). Precious metal stocks are rising along with the metals after bouncing off their summer lows as well (Chart 7).

Chart 5

Chart 6

Chart 7

MORE ON CANADA ... I wrote on Friday that new buying in oversold commodity markets probably accounted for new signs of strength in the Canadian stock market. The daily bars in Chart 8 show the Toronto Index (TSE) surging again today. This is the first time Canada has outperformed the U.S. in two months (when commodities started to fall). Chart 9 shows Canada iShares (EWC) lagging behind the TSE. The reason for that is recent weakness in the Canadian Dollar (the green line beneath Chart 9). The EWC is quoted in U.S. Dollars while the TSE is quoted in Canadian Dollars. The Canada iShares are weighed down by a soft Canadian Dollar. [That also explains why Japan iShares (EWJ) are lagging behind the Nikkei. Rising gold prices may boost both].

Chart 8

Chart 9

LATIN AMERICA LIFTS EMERGING MARKETS ... Latin America is another region of the world that benefits from rising commodities. That may explain last week's upside breakout in the Latin America iShares (ILF) which are now trading at a five-month high (Chart 10). Their relative strength line is starting to rise versus the S&P 500. That's giving a boost to Emerging Market iShares (EEM) in Chart 11 which have a similar chart pattern. It seems like global markets are turning more confident. That would explain new buying of small caps and emerging markets. Another important test for market will take place if and when some of those lagging indexes reach their May highs.

Chart 10

Chart 11

DOES 12K DOW MEAN ANYTHING? ... The media has been on a "Dow 12,000" watch for the last couple of weeks. The Dow came within three points of touching 12K today. From a charting standpoint, the critical number was the high reached in early 2000 which was recently exceeded. I don't see any chart significance to 12,000 other than noting that it's the next big round number. Sometimes big round numbers can cause "psychological" resistance in an advancing market. If a market pullback does occur, it will be for other reasons -- not Dow 12,000.

Chart 12

CNBC INTERVIEW TOMORROW ... I'll be doing one of my rare CNBC interviews with Maria Bartiromo tomorrow afternoon (Tuesday) around 3:00 pm. Tune in if you get a chance.