COMMODITY MONEY FLOWS INTO CONSUMER DISCRETIONARY STOCKS, FINANCIALS, AND TECHS -- S&P 500 HITS THREE-MONTH HIGH

COMMODITY CORRECTION CONTINUES ... The combination of a rising stock market and a bouncing dollar is continuing the recent rotation out of an overbought commodity group. The streetTracks Gold Trust (GLD) hit a four-month low and appears headed toward its 200-day moving averagae (Chart 1). Most other commodities sold off as well. Chart 2 shows the CRB Index falling 10 points today to undercut its 50-day average for the first for the first time in a month. Dollar strength is reflected in a 1% drop in the Euro, which also undercut its 50-day line (Chart 3). The only market groups in the red today were commodity related -- basic materials, energy, and gold. That commodity money isn't leaving the stock market. It's rotating into some of the year's weakest groups. That includes consumer discretionary, financials, and technology. A big bounce in airline stocks pushed transportation stocks to a new recovery high. The airline bounce is a result of falling oil prices.

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FINANCIALS TOP MARCH PEAK ... The Financials Sector SPDR gained more than 3% today and closed just above its mid-March intra-day peak at 27.37. Although upside volume wasn't that heavy, it did pick up on the day. That puts the XLF in position to move closer to its 200-day moving average and its January high. Its relative strength ratio (bottom of chart) has shown some upside movement since mid-March. Consumer discretionary stocks had an even better day.

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CONSUMER DISCRETIONARY BOUNCE ... The Consumer Discretionary SPDR (XLY) rose more than 5% today and was the day's biggest winner. The XLY got a lot of help from Office Depot (+11%), Comcast (+8%), Pulte Homes (+8%), Staples (+5%), and Home Depot (+3.7%). Today's breakout over its February high puts the XLY in position to challenge its 200-day average (Chart 5) and a down trendline drawn over its July/October highs. Technology stocks also led the market rally.

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NASDAQ COMPOSITE HEADS TOWARD 200-DAY LINE ... Technology stocks had a strong day as well. A 2.8% gain in the Nasdaq Composite pushed that index to a nearly four-month high and closer to its 200-day moving average. The Nasdaq 100 Index closed closed above its 200-day line. Both indexes got a lot of help from Symantic's 12% gain (Chart 8) and an 8.5% jump in Comcast (Chart 9). Both Nasdaq stocks closed above their 200-day line in heavy trading.

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S&P 500 HITS THREE-MONTH HIGH ... The S&P 500 finally closed above the 1400 level for the first time since early January. That upside breakout has moved it out of a three-month trading range into an intermediate recovery. The next major test will take place at its 200-day moving average and a trendline drawn over its October/December highs.

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