STOCKS AND COMMODITIES CONTINUE RALLY AS DOLLAR DROPS -- COPPER JUMPS 4% AS CHINESE ETFS HIT NEW HIGHS -- DOW NEARS 50% RETRACEMENT POINT NEAR 10,500

COMMODITIES CONTINUE BULL RUN ... The dollar is dropping again and commodities are rising. Chart 1 shows the DB Commodities Tracking Index (DBC) exceeding its early August high after completing a bullish symmetrical triangle. Most commodities are joining the rally. Chart 2 shows the United States Oil Fund (USO) having also broken free of a symmetrical triangle and exceeding its June high. Gold and silver are up as well. So is copper which is viewed as a bellwether of global economic strength. Chart 3 shows the IPath Copper ETF (JJC) jumping 4% today and challenging its September high. I've written several times in the past that copper is highly correlated with the Chinese stock market. Copper may be drawing strength from today's breakout in Chinese ETFs.

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CHINESE ETFS HIT NEW HIGHS... China had been the only large emerging market failing to reach a new recovery high. That's no longer the case. Chart 4 shows HongKong iShares (EWH) hitting a new high. Chart 5 shows a similar breakout in China iShares (FXI). Those breakouts may be giving an added boost to global stocks and commodities.

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DOW NEARS 50% RETRACEMENT POINT ... I recently showed a chart of the S&P 500 nearing a test of its 50% retracement point (and major down trendline) near 1120. The S&P is now with 20 points (or 2%) of that upside test. Chart 6 applies similar analysis to the Dow Industrials. Although much has been made of the Dow Industrials crossing over the 10,000 mark, actual overhead resistance starts closer to the 10,500 level. That's roughly where a major down trendline comes into play as well as the 50% retracement point. [Today's blog entry by Arthur Hill draws the same conclusion using a different indicator]. The daily bars in Chart 7 show the Dow reaching 10110 today. Chart 8 shows the S&P 500 touching 1100. Chart 9 shows the Nasdaq Composite testing its September high. Initial chart support for all three stock indexes resides at their early October lows. One of the driving forces in the stock (and commodity) market is the continuing drop in the U.S. Dollar. Chart 10 shows the Dollar ETF (UUP) touching a new 14-month low today. The inverse relationship between a falling dollar and rising stocks and commodities has been widely covered in recent weeks. The UUP would have to rise above initial resistance at 23.00 to interrupt its downtrend.

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