FALLING RATES WEAKEN DOLLAR AND BOOST COMMODITIES -- JAPAN ISHARES ARE WEEK'S TOP ETF -- INTERNATIONAL PAPER BREAKS OUT -- CONSUMER STAPLES ARE STAGING COMEBACK -- BROADBAND HOLDERS HAVE STRONG WEEK

IT STARTS WITH FALLING BOND YIELDS... The main feature of the week was a falling dollar, which was the result of falling bond yields. Chart 1 shows the 10-year T-note yield trading at the lowest level in a month. Falling U.S. rates weaken the dollar. Chart 2 shows the U.S. Dollar Index closing at a six-week low and below its 50-day moving average. A weaker dollar pushed the Reuters/Jefferies CRB Index to a six-week high and back above its 50-day average. The CRB, which has a heavy energy weighting, got a boost from a jump in energy prices on Friday. The weaker dollar also gave a boost to foreign stock ETFs, the strongest of which were Japan iShares (EWJ). Chart 4 shows the EWJ surging to a new recovery high. Part of its strength came from a seven-year high in the Nikkei. And part of it came from a rising yen. The solid orange line in Chart 4 is a ratio of the EWJ to the S&P 500. The ratio has risen to the highest level in five months.

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INTERNATIONAL PAPER BREAKS OUT ... Basic materials have been the market's strongest sector in 2007. A lot of that leadership has come from aluminum, chemical, and steel stocks. Paper & forest product stocks are also enjoying a resurgence. I recently showed International Paper moving up to challenge its spring 2006 high. The weekly bars in Chart 5 show the stock breaking through that chart barrier this week. Its relative strength ratio (blue line) is also starting to rise. The monthly bars in Chart 6 give a longer-range view and also suggest a stock just starting to move higher. Two other stocks in this category hit new records this week. Chart 7 shows Temple Inland doing so, while Chart 8 shows Weyerhaeuser closing over 80 for the first time in its history. The latter stock's relative strength ratio in Chart 8 is rising for the first time in five years (see circle).

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CONSUMER STAPLES ARE COMING BACK ... One of the more subtle changes taking place over the last week was new interest in consumer staples. Most of the interest was in food and beverages (brewers to be more exact). Some of the week's food leaders were Campbell Soup, Dean Foods, Tyson Foods, and Hersheys. The first two (CPB and DF) hit new records, while TSN hit a new 52-week high. Chart 9 shows the Consumer Staples Sector SPDR (red line) hitting a new record high. The blue line, however, (which is the XLP:S&P relative strength ratio) may be the bigger story. It's been falling since the end of August when the latest bull market run started. The RS line is starting to bounce again for the second time since December. I only point this out because renewed interest in consumer staples is often a sign that investors are turning a little more defensive. That would be consistent with expectations for a slowing economy.

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BROADBAND HOLDERS TOP DOMESTIC ETFS ... A number of technology ETFs had strong weeks, including those devoted to the Internet, networkers, and wireless. The strongest technology ETF for the week, however, was Broadband Holders (BDH). Chart 10 shows the BDH closing over its 200-day moving average for the first time in at least nine months. And it did so on very heavy volume. That's a healthy combination. The BDH:S&P 500 relative strength ratio (blue line) is also starting to rise for the first time since October. The biggest contributor to the BDH rise was Qualcomm, which gained 11% during the week and was one of the Nasdaq market's strongest stocks.

Chart 10