ECB RATE HIKE TALK BOOSTS OIL AND MOST OTHER COMMODITIES -- MARKET STILL HAS STRONG DAY -- WAL-MART HITS SIX-YEAR HIGH

EURO SURGE BOOSTS COMMODITIES ... Today's report that the ECB may raise European rates next month to combat inflation pushed the Euro sharply higher today and the dollar lower. Chart 1 shows the Euro jumping 1% today and bouncing off its May low. That lit a spark under most commodity markets. Crude oil surged more than $5.00. The CRB Index gained more than 7 points as most other commodities rose. Chart 2 shows the DB Commodities Tracking Fund jumping 3.6%. Although gold closed lower, gold stocks had a strong day. So did energy and basic material stocks which were the day's biggest winners. Energy shares surged more than 3% while basic materials rose 2%. Despite the sharp jump in energy prices, the stock market had a strong day as well.

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NASDAQ CLOSES OVER 200-DAY AVERAGE ... Arthur Hill wrote yesterday about upside leadership in small cap and technology stocks. That was reflected in today's action. Charts 3 and 4 show the Nasdaq Composite Index and the S&P 500 Small Cap Index both closing over their 200-day moving averges. Large cap stocks continue to lag behind. Chart 5 shows the S&P 500 closing well above its 50-day average today but still below its 200-day line. In a lot of ways, it was a strange market day. Among the day's strongest groups were airlines (+5.6%), brokers (+4%) and energy. That's a strange combination of winning stocks.

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BOND YIELDS CLIMB BACK OVER 4%... Bond yields rose along with stocks today as bond prices sold off. Chart 6 shows the 10-Year T-Note Yield ending back over 4% and its 200-day moving average. Normally, rising bond yields boost the dollar which wasn't the case today. It will be interesting to see how many of these conflicting intermarket trends play out on Friday as we reach the end of the trading week.

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WAL MART REACHES SIX-YEAR HIGH ... Wal-Mart reported a big jump in May same store sales and was rewarded with a gain of 3.4% on the day. Chart 1 shows the big discount retailer closing at a new 52-week high on rising volume. The monthly bars in Chart 8 are even more impressive. They show Wal-Mart trading at the highest level in six years after exceeding its 2004 high at 58. The rising relative strength line (above Chart 8) shows that this year's performance has been the best for Wal-Mart in several years. Part of the reason for the strong gains in Wal-Mart (and Costco) may be simply the fact that consumers are shopping in stores where they can get the best bargains. That's not a sign of consumer confidence, but is a good sign for both of those stocks.

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