STOCKS FALL IN HEAVY TRADING ON BAILOUT PLAN -- DROP IN EURO PUSHES DOLLAR HIGHER AND MOST COMMODITIES LOWER -- GOLD AND THE YEN CONTINUE TO ATTRACT SAFE HAVEN MONEY

STOCKS FALL IN HEAVY TRADING ... The stock market reacted badly to release of the latest bailout plan. All of the major market indexes lost more than 4%. Charts 1 and 2 show the Dow Diamonds and the S&P 500 SPDRs falling in heavy trading. Both indexes met resistance near their 50-day moving averages. Big board declines beat advances by a seven to one ratio. All in all, a bad day. All market sectors ended in the red with the biggest loss of -10% coming in the financials. Today's high-volume selloff may ended the recent rally attempt. Other financial markets reverted back to a defensive mode. Bond prices rose as stocks fell. A drop in most foreign currencies boosted the dollar which pushed most commodities lower. Two exceptions were the yen and gold which gained ground.

Chart 1

Chart 2

EURO FALLS WITH STOCKS...DOLLAR BOUNCES AS COMMODITIES DROP... Chart 3 shows the Euro losing ground today (as did the British Pound, Aussie and Canadian Dollars). The blue line in Chart 3 is the EAFE iShares. Notice the close correlation between the two lines. In other words, most foreign currencies fall when stocks fall. Chart 4 shows the U.S. Dollar ending higher today. The black line represents commodity prices. The rising dollar pushed most commodities lower. The only exception was gold which rose. So did the Japanese yen.

Chart 3

Chart 4

GOLD AND YEN RISE... Since the summer of 2007, the Japanese yen has risen while global stocks have fallen as shown in Chart 5. The 2007 upturn in the yen marked the end of the "yen carry trade" that had supported global equities. Chart 5 shows the yen rising again today as stocks fell. So far, there's no sign of an end to their inverse correlation. Since October, gold has risen even faster than the yen. Chart 6 shows the streetTracks Gold Trust (GLD) jumping the equivalent of $21 on rising volume. The GLD is once again challenging resistance at its Autumn high. I continue to believe that bullion is heading to its March 2008 high near $1,000. Gold stocks, which were up earlier in the day, closed lower. I also believe that the commodity will continue to do better than gold shares.

Chart 5

Chart 6