SURGE IN CONSUMER CONFIDENCE KEEPS SPRING UPTREND INTACT -- FOREIGN STOCKS ARE LEADING US HIGHER BECAUSE OF THE FALLING DOLLAR -- THAT'S ESPECIALLY HELPFUL FOR FOR FOREIGN ETFS LIKE CANADA

SHORT-TERM STOCK SUPPORT HOLDS... A big surge in consumer confidence has gotten stocks off to a strong start in the holiday-shortened week. Charts 1 and 2 show the Dow Industrials and the S&P 500 trading more than 2% higher in early afternoon trading. Today's bounce has kept both stock indexes above initial chart support formed over the last two weeks and is keeping the spring uptrend intact. Chart 2 shows the S&P 500 bouncing off initial chart support at 878. Today's 3% gain in the Nasdaq Composite Index makes it the strongest of the three indexes. That's due mainly to a strong technoloy sector. The Nasdaq is trading back over its 200-day moving average (Chart 3). Other leaders are consumer discretionary stocks, REITs, transports, and small caps.

Chart 1

Chart 2

Chart 3

FALLING DOLLAR BOOSTS FOREIGN SHARES ... Foreign ETFs have been rising faster than the U.S. market over the last two months. Chart 4 shows EAFE iShares trading over their January high and 200-day average (while most U.S. stock indexes are still below both barriers). That superior performance by foreign shares is seen more clearly by the rising EFA:SPX ratio just below the price bars. The ratio has been rising since early March. One big reason for that has to do with the drop in the value of the U.S. Dollar Index (bottom green line). After rallying through the first two months of the new year, the dollar peaked at the start of March and has been falling since then. One of the side-effects of a falling dollar is that it favors foreign stocks. That's especially true of foreign ETFs which are actually quoted in U.S. Dollars. A weaker dollar also causes foreign ETFs to rise faster than their respective cash markets. One example of that happening is in Canada.

Chart 4

CANADIAN DOLLAR BOOSTS CANADIAN ISHARES ... Chart 5 shows Canadian iShares (EWC) hitting a new recovery high in today's trading. The Toronto cash market has yet to do so. That's because the iShares have been rising faster than the TSE since March. The rising EWC:TSE ratio (below chart) shows that happening. The main reason for that is the rising Canadian Dollar (bottom green line). Notice the close correlation between the two lower lines. The Canadian stock market is quoted in stronger Canadian Dollars, while Canadian iShares are quoted in weaker U.S. Dollars. As a result, a stronger Canadian currency causes the iShares (quoted in the weaker U.S. currency) to rise faster than the cash stock market. That's true of all foreign markets. Canadian stocks get an added boost. A falling U.S. Dollar also boosts the prices of commodities of which Canadian is a big producer. Canadian iShares are getting a double boost from the falling U.S. Dollar and rising commodities.

Chart 5