FINANCIAL REBOUND GIVES MARKET A BOOST -- DOW TRIGGERS P&F BUY SIGNAL -- RECORD LOW IN THE DOLLAR GIVES COMMODITIES A BIG BOOST -- AUSTRALIA, BRAZIL, AND CANADA ETFS BENEFIT FROM RISING COMMODITIES AND WEAK DOLLAR

FINANCIALS ARE DAY'S STRONGEST GROUP ... My last words on Thursday evening were that the market wouldn't rally much without a bounce in the financials. It got that bounce today and rallied accordingly. For a change, the financials were the day's strongest sector (all of which closed higher today). Chart 1 shows the Financials SPDR (XLF) climbing 2.66% today (versus +1.3% for the S&P 500). Its relative strength (solid) line bounced as well. Banks and brokers gained 2.6% and 3.4% respecively. Merrill Lynch's 8% gain paced brokers (Chart 2). A 32% jump in Countrywide Financial made that stock the day's top financial performer. Chart 3 shows CFC gapping higher on the biggest volume in two months. Today's action wasn't enough to reverse the downtrend in either financial stock. It did, however, remove the financial weight from the market and allowed it to have a strong day.

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DOW TRIGGERS P&F BUY SIGNAL ... Yesterday I showed the Dow Industrials bouncing off chart support at its early September peak (near 13500) and its 50-day moving average (Chart 4). If the uptrend that started in mid-August is to continue, this is where it should start rising again. And it did so again today. Not only did the Dow rise 134 points to end well above those support levels, it triggered a point & figure buy signal. Chart 5 uses the "traditional" box size of 50 Dow points (used by Stockcharts as the default box size). The two green boxes (today's action) shows the last x column exceeding the previous x column. That short-term buy signal reverses the short-term sell signal given earlier in the month at 13900. The Nasdaq did even better with a daily gain of +1.9%. Microsoft's 9% gain to a new six-year high had a lot to do with that. [For more on Microsoft, please my Market Message posted earlier today].

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RECORD DOLLAR BOOSTS PRECIOUS METALS... The U.S. Dollar Index fell to another record low today (Chart 6). That kept commodity markets on an upward trajectory. The Reuters/Jefferies CRB Index closed at another 52-week high. Most commodity markets joined in, including crude oil which hit a new record high at $92. Gold surged $16 to another 27-year high (Chart 7). Chart 8 shows the Silver iShares (SLV) surging 2.7% to the highest level in six months. Precious metal shares were among the day's stock leaders. Chart 9 shows the Market Vectors Gold Miners ETF (GDX) ending at a new closing high. The May 2006 peak (near 45) is now acting as a new support level below the GDX. Basic materials and energy stocks were also among today's market leaders. As I suggested in my earlier message today, the falling dollar is also keeping foreign ETFs in a leadership role -- especially those tied to rising commodities like Australia, Brazil, and Canada. Their ETFs are also benefiting from rising local currencies in those three countries.

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RISING CURRENCIES BOOST FOREIGN ETFS ... I've explained before why rising foreign currencies boost foreign ETFs. It's simply because foreign ETFs are quoted in U.S. Dollars. As a result, they get an added boost when the dollar is dropping and the local currency is rising. Foreign markets that are commodity producers get an added kick from rising commodity prices. Australia and Canada are good examples. Charts 10 and 11 show the Australia and Canada iShares (red lines) hitting new record highs this week. The rising green lines show the Australian and Canadian Dollars hitting new highs as well. That means that American investors get not only the benefit of rising commodities in those two countries, but they get an added boost from rising foreign currencies. Brazil is another example of a commodity producer that's on a tear (Chart 12). [China buys a lot of its raw materials from Brazil. As a result, the fortunes of those two huge emerging markets are closely tied together].

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Chart 12