GLOBAL STOCKS SOAR ON MASSIVE RESCUE PLAN AND BAN ON SHORT SELLERS -- FINANCIALS ARE BIGGEST GAINERS -- SAFE HAVENS LIKE GOLD, BONDS, AND YEN TUMBLE -- SMALL CAP INDEX IS CHALLENGING ITS SUMMER HIGH

FINANCIALS SURGE ... A massive government rescue plan and a temporary ban on short selling has boosted the Financials Sector SPDR by nearly 12% (Chart 1). It's the day's strongest sector on a day when all sectors are in the black. Brokers (not shown) are up 12% and banks nearly a similar amount. Chart 2 shows the PHLX Bank Index trading over its 200-day moving average for the first time in more than a year. If the financials can hold most of those gains through the end of the day, it will be a big positive for them and the rest of the market.

Chart 1

Chart 2

SAFE HAVENS FALL... Three recent safe havens are falling sharply today. The 7-10 Treasury Bond Fund (Chart 3) has gapped sharply lower as bond yields rise. Chart 4 shows the Japanese yen gapping down against the dollar. The yen had been the strongest currency during the recent stock selloff. Gold prices are down $35 today. Sharp drops in those three markets reflect the dramatic shift to a more confident mood as global stocks soar.

Chart 3

Chart 4

GLOBAL SURGE ... Some of the percentage gains in global stocks are among the biggest in history. European stocks are climbing by an average of 9%. Chart 5 shows the EAFE iShares gapping nearly 7% higher and challenging its 50-day average. Charts 6 and 7 show the Dow Diamonds and S&P 500 SPDRS gapping higher as well. The most impressive chart, however, belongs to small cap stocks.

Chart 5

Chart 6

Chart 7

SMALL CAP INDEX TESTS SUMMER HIGHS ... Chart 8 shows the Russell 2000 Small Cap Index gapping up to challenge its summer highs near 760. That's a very important test. A decisive close over that resistance barrier would be a bullish sign for small caps and would increase the odds that the market has entered its fourth quarter rally.

Chart 8

THE BOTTOM FOR 2008 MAY BE IN... Yesterday's message drew a comparison between the autumn of 2001 and 2002 when the market started fourth quarter rallies. I suggested that the market may have entered a capitulation phase that usually leads to yearend rallies. That's also the historical pattern during presidential election years. We'll have to wait and see if today's early gains hold. My best guess at this point, however, is that we've probably seen the low for 2008 and the start of a yearend rally.