CITIGROUP AND FINANCIALS LEAD OVERSOLD MARKET HIGHER -- OTHER POSITIVES INCLUDE A PULLBACK IN THE DOLLAR, BONDS, AND GOLD AND A BOUNCE IN COPPER AND OIL

CITIGROUP LEADS FINANCIALS HIGHER... News that Citigroup is having a good quarter has pushed that stock sharply higher today and helped spark a global stock rebound. The daily bars in Chart 1 show Citigroup gapping 34% higher (and on rising volume). The 14-day RSI (solid line) is rebounding from an oversold condition. As a result, financial stocks are leading an impressive rally. Chart 2 shows the Financials Select SPDR (XLF) jumping 12%. The daily MACD lines (below chart) are close to turning positive. Even better, the MACD lines are testing their January low and remain well above their November low. That "positive divergence" may lead to the first decent bounce since the start of the year. Chart 3 shows the S&P 500 jumping more than 5%. The Commodity Channel (CCI) line below Chart 3 also shows a slight positive divergence over the last month from oversold territory, and is moving above the -100 line. That's the first time it's done that since mid-January. All of which suggests that stocks are probably entering a much-needed bounce from an oversold condition. Initial upside resistance for the S&P 500 is its November low near 740. A one-third to 50% bounce would put it in the 750-800 region. There's no convincing signs that this is anything more than an oversold bounce. But it may be a decent bounce. One way we'd know if it were more than just an oversold bounce would be its ability to clear its 50-day moving average which currently sits at 820.

Chart 1

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OTHER SIGNS OF STABILIZATION ... Several other positive "short-term" developments are taking place. For one thing, the dollar is pullling back and most commodities are bouncing. That's especially true of copper and oil. Gold is dropping which means investors are less fearful. Bond prices are also dropping as money moves back into stocks. I wrote recently that one of the things that would be needed to help stabilize stocks and commodities was a falling dollar. I've also written that there was a positive correlation between the falling Euro (and most other currencies) and foreign stocks. Chart 5 shows the ProShares Dollar Fund (UUP) backing off from resistance at its November high. At the same time, the Euro (blue line) is bouncing off its November low (as are most foreign currencies). That suggests to me that short-term sentiment is turning away from the dollar which is a good sign for stocks and commodities.

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COPPER AND OIL ARE BOUNCING ... Two of the most economically-sensitive commodities are copper and oil. Both are bouncing. Chart 6 shows copper trading over $170 for the first time in four months. [Copper is viewed as a barometer of global demand. China is the biggest importer of copper]. Chart 7 shows crude oil prices moving closer to $50 after finding support near $40. It's much too soon to call these major bottoms. But they do show that short-term sentiment is improving. Part of the impetus for these bounces may be a weakening dollar. Gold, which has moved in the opposite direction of other commodities, is experiencing profit-taking.

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GOLD ASSETS ARE CORRECTING ... Two weeks ago on Tuesday, February 24 I pointed out that the Market Vectors Gold Index had fallen back below its 200-day moving average. I also warned that gold was giving a short-term sell signal after backing off from its spring 2008 high at $1,000. I suggested some profit-taking. That profit-taking has continued. Chart 7 shows the GDX trading below 30 for the first time in two months. Gold stocks are the day's weakest stock group. Chart 8 shows the streetTracks Gold Trust (GLD) dipping below its 50-day moving average. A lot of the gold selling is coming from better sentiment in other commodities and a bouncing stock market. That also explains why other recent safe havens, like bonds and the dollar, are also being sold today.

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