BONDS RALLY AS STOCKS DROP -- T-BILL RATE STAYS NEAR ZERO -- RISING DOLLAR KEEPS COMMODITIES ON THE DEFENSIVE -- FINANCIALS HIT NEW LOWS ALONG WITH CHIPS AND REITS -- MAJOR INDEXES RETEST LAST THURSDAY'S INTRA-DAY LOW

DOLLAR RISES AS COMMODITIES FALL ... Chart 1 show the Power Shares US Dollar Bullish ETF (UUP) moving up toward its October high. The ability of the dollar to continue its rise is keeping commodities under pressure. The streetTrack Gold Trust (GLD) in Chart 2 is almost a mirror image of the dollar. Other commodities are even weaker. Chart 3 shows the United Stated Oil ETF (US) hitting a new low. The DB Commodities Tracking Index ETF (DBC) in Chart 4 is doing the same. Commodities are also being dragged down by the continuing erosion in global stock markets.

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BONDS ARE RALLYING ... Bond prices had a strong day today. That was most likely due to a drop in stock prices and a record drop in the PPI inflation number. Chart 5 shows the 7-10 Year Treasury Bond ETF (IEF) exceeding its October high. That strong price action coincided with a sharp drop in bond yields. Short-term rates are still at historically low levels. Chart 6 shows the 3-month T-Bill rate still trading near zero. The willingnesss of investors to accept a zero return for their money shows that confidence in the stock market is still very low.

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FINANCIALS HIT NEW LOWS... Bank and brokerage stocks fell to new bear market lows today as shown in Charts 7 and 9. That pushed the Financials SPDR (XLF) to a new low as well. Financials weren't the only indexes hitting new lows. Today's bear list includes semiconductors and REITs. All of those indexes have undercut last Thursday's intra-day low.

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MAJOR INDEX THREATEN RECENT LOWS ... A 12% gain in Hewlett Packard helped steady the Dow today. Most stocks, however, lost ground. The next three charts show all three of the major stock indexes retesting the intra-day low formed last Thursday. A late day bounce kept them from hitting new lows. The Nasdaq is the weakest of the three and is trading below its October low. As I suggested this morning, prices would have to exceed last Friday's intra-day peak to help steady the market's short-term trend. That would only serve to keep prices in a two-month trading range. The more important long-term trend, however, is still down.

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