ANOTHER MONDAY JUMP IN STOCKS AND COMMODITIES -- CHEVRON AND EXXON MOBIL SHOW NEW ENERGY LEADERSHIP -- MONEY IS FLOWING INTO LARGE DIVIDEND STOCKS -- VERIZON IS ONE OF THE CHEAPER DIVIDEND PAYERS -- GOLD STOCKS NEAR 2008 HIGH AND MAY BE DUE FOR A BREATHER

EURO UPTREND SUPPORTS STOCKS AND COMMODITIES... As you know, stocks and commodities have been rising most of the year as the U.S. dollar has been dropping. Foreign currencies have also been rising. As a result, a strong positive correlation has existed between the Euro (which has the biggest impact on the Dollar Index) and stocks and commodities. That's why I'm showing the Euro first today. Chart 1 shows the last upleg in the Euro starting in July which matches a similar uptrend in stocks. [Both bottomed together during March]. Putting my intermarket hat on, that means that the direction of the Euro tells us a lot about the corresponding uptrend in stocks and commodities. The 50-day moving average (blue line) has done a good job of containing the Euro uptrend. After bouncing off that support line on Friday, the Euro is gapping higher today. That strong action is supporting strong rallies in global stocks and commodities. Currency traders are watching the 150 level very closely, since it has contained the Euro rally since mid-October. Chart 2 shows a higher opening as well in the DB Commodities ETF (DBC). That puts the commodity basket near the top of its month-long trading range (just like the Euro). Note that the late-October bottom in the DBC bounced off support at the falling trendline (see arrow). That's a positive sign. So is the ability of the S&P 500 to rise back above 1100 as shown in Chart 3. Although that strong action is keeping market momentum to the upside, it brings the SPX closer to potential long-term resistance near 1120 (as shown on Friday) which represents a test of a two-year down trendline and the 50% retracement point.

Chart 1

Chart 2

Chart 3

BIG OIL STOCKS TAKE OVER LEADERSHIP ... In keeping with the recent trend of money starting to gravitate to larger (and safer) stocks, it's not surprising to see the two biggest energy stocks starting to exert upside leadership not only in the broader market but in the energy patch as well. Chart 4 shows Chevron hitting a new 52-week high today (on the back of rising energy prices and a strong energy sector). The bigger story has to do with the two relative strength ratios in Chart 4. The CVX/XLE ratio (top of chart) shows that Chevron had been an energy laggard until early October. The rising ratio shows it to now be an energy leader. The CVX/SPX ratio (bottom of chart) shows Chevron having become a market leader since mid-October. Chart 5 shows a similar improvement in absolute and relative performance in Exxon Mobil. The big energy stock has broken through its June high near 74 to record a new nine-month high. The XOM/SPX ratio (bottom of Chart 5) shows new upside leadership by XOM as well. One possible explanation for the recent rotation toward larger stocks may have to do with the paying of dividends.

Chart 4

Chart 5

BARRON'S LISTS TOP DIVIDEND PAYERS... A weekend Barron's article listed twenty stocks that are good dividend payers. Not only are they larger stocks, but most of them are in defensive categories like consumer staples (Coca Cola, McDonalds, Nestle, Pepsico, Procter & Gamble, Wal Mart), healthcare (Abbott Labs, Johnson & Johnson, Merck, Novartis), utilities (Emerson Electric), and telecom (AT&T, Telefonica, Verizon). Chevron was included in the energy sector which may help explain its recent popularity. [The list also included Intel, Lockheed Martin, Microsoft, and United Technologies]. It's worth noting, however, that 15 out of the 20 are from what are normally considered to be defensive areas. Many are also included in the Dow and are the ones mostly hitting new 52-week highs. One of the recent Dow leaders that is just starting to rally is Verizon Communications. Chart 6 shows VZ trading over 31 for the first time in three months. The VZ/ INDU ratio (solid line) is just starting to strengthen after fallng for six months. Verizon may be one of those bigger dividend-paying stocks worth paying attention to. And it still looks relatively cheap.

Chart 6

SELECT DIVIDEND ISHARES ... Another way to participate in dividend paying stocks is through the DJ Select Dividend ETF (DVY). Chart 7 shows the DVY nearing a new 52-week high. The DVY/SPX ratio (solid line) shows that the group has been a relative laggard since the March bottom. The converging trendines on the ratio, however, have the look of an "ascending triangle" which is normally a bullish sign. The ratio would have to break the upper line, however, to really turn positive. But that's the point of looking at this relatively defensive group now. In a market that's risen 60% without a correction, it's hard to know where to put new stock money to work (if at all). Large cap stocks usually do better in the later stages of a market rebound. That includes dividend-paying stocks. Dividends also lessen the impact of any market downturn. Large dividend-paying stocks look like a good compromise at this point in time and offer a relatively safer place to commit new funds. I suspect that's the reason why so many of them are starting to attract new money.

Chart 7

GOLD MINERS INDEX NEARS 2008 HIGH... Since gold is trading at a record high, there's no conventional way to find a potential resistance barrier (although a major upside target to $1300 remains unfulfilled). That's not the case with gold shares, however. Chart 8 shows the Market Vectors Gold Miners ETF (GDX) entering a potential resistance zone formed during 2008 ranging from 50 to 56. Needless to say, any profit-taking in that zone would probably be enought to stall the gold rally (at least temporarily). Chart 9 shows Newmont Mining (one of the biggest stocks in the GDX) trading within one point of its 2008 high. That's another sign that the gold rally may be due for a breather.

Chart 8

Chart 9