CITIGROUP BAILOUT HELPS PUSH MARKET INTO FIRST TWO-DAY GAIN IN A MONTH -- DOLLAR DROP BOOSTS COMMODITIES -- VIX AND JAPANESE YEN ALSO DROP AS GLOBAL STOCKS BOUNCE

NYSE COMPOSITE JUMPS 7% ... Thanks largely to a government bailout of Citigroup that pushed that stock up nearly 60% today, financials gained 15% and helped ignite a 6% jump in market market indexes. It was the first two-day jump this month, and it occurred on decent volume and positive breadth figures. Advancers on the big board led decliners by an eight to one margin. Chart 1 shows the NYSE Composite Index gaining 7% thanks to a big jump in material stocks. This morning, I mentioned that daily RSI lines were in oversold territory and showing short-term positive divergences in several stock indexes. That can be seen more clearly in Chart 2 for the NYA. Notice that the RSI line is higher than its October bottom (below 30) while the NYA was hitting a new low. That type of divergence usually leads to market bounces. The fact that those indexes are bouncing from chart support at their 2002 lows is also helpful. We've had a lot of false starts before, but I think this bounce is capable of reaching its early November peak and/or its 50-day moving average. That wouldn't change the market's long-term trend, but would be the strongest bounce since the last downturn started in mid-September. Other markets reacted in a predictable way. Bonds and the dollar sold off as commodities bounced.

Chart 1

Chart 2

DOLLAR DROPS AS COMMODITIES BOUNCE ... On Friday, I showed gold breaking out to the upside and suggested that might be hinting at a dollar pullback. We got that today. Chart 4 shows the DB US Dollar Bullish ETF (UUP) gapping down 2.4% after failing a test of its late October peak. Its daily RSI and MACD lines are weakening as well. That gave a boost to commodities. Oil rose more than $4.00 while gold jumped another $30. Gold stocks hit a new monthly high. Energy stocks were also strong. That makes sense considering the close correlation between stocks and commodities. A stock rally would be consistent with a commodity bounce and a dollar pullback. Bond prices fell as stocks rose.

Chart 3

VIX AND YEN ARE CORRECTING ... Two other markets that have been trending in the opposite direction of stocks fell today. Chart 4 shows the Japanese yen falling against the dollar. The yen rally started in September as stocks started to fall and it took on safe haven status. A falling yen shows a bit more confidence in global stocks. Chart 5 shows the CBOE Volatility (VIX) Index falling 10%. It too has been trending in the opposite direction of stocks. It looks like the yen and the VIX are heading down for a test of their 50-day moving average. That would be consistent with market indexes rising to their 50-day lines.

Chart 4

Chart 5