TREASURY PLAN TO BUY TOXIC ASSETS SPARKS STRONG STOCK DAY LED BY FINANCIALS AND HOMEBUILDERS -- COPPER AND OIL LEAD COMMODITY RALLY EASING DEFLATION FEARS -- CHINA AND EMERGING MARKETS SHOW UPSIDE LEADERSHIP

S&P 500 CLEARS 800 RESISTANCE AND 50-DAY AVERAGE... The Treasury's trillion dollar plan for buying bank toxic assets, combined with a strong February housing figure, sparked a strong day in both stocks and commodity markets. Financials and energy were the two strongest groups. Homebuilders and REITS were also strong. Market breadth was decidedly positive. Volume figures,however, were a bit disappointing. Nonetheless, it was a very encouraging day. From a chart standpoint, the most important factor may have been the ability of the S&P 500 to decisively clear the 800 barrier (See Chart 1). That puts the S&P above its 50-day average, a two-month down trendline, and its February low. In my view, that pretty much rules out the idea of another retest of the March low. With so many technical indicators having turned positive of late, the stage may be set for a run at the January high. In the absence of heavier volume, I'd like to see some upside follow-through tomorrow to confirm that today's upside breakout was for real.

Chart 1

Chart 2

COMMODITIES RALLY WITH STOCKS ... With fears of deflation receding, commodity prices continued their recent rally. That's a sign that global investors are becoming a bit more optimistic. Chart 3 shows the CRB Index climbing to a two-month high today. Two of the biggest gainers were crude oil and copper which are two of the most economically-sensitive commodities. Since commodities and stocks fell together since the middle of 2008, it's a good sign to see both of them rising together. Energy stocks were among the day's leaders.

Chart 3

Chart 4

EMERGING MARKET ISHARES SHOW UPSIDE LEADERSHIP ... Earlier today I showed Chinese stocks rallying strongly and suggested that was giving a big boost to emerging markets. Chart 5 shows Emerging Market iShares closing at the highest level since early January -- and on heavy volume. Emerging markets are closely tied to the trend of commodities. China is the world's biggest importer of commodities like copper, while Brazil and Russia are commodity exporters. Their rising trends appear to be supporting each other.

Chart 5