STOCKS SURGE ON LOWER CPI FOR OCTOBER -- SHARP DROP IN BOND YIELDS BOOSTS HOMEBUILDERS -- HIGHER COMMODITY PRICES BOOST MATERIALS -- ASSET MANAGERS LEAD FINANCIALS

DOW LEADS STOCKS HIGHER... Annual inflation for  October was a lower than expected reading of  7.7% which was the lowest since January. That softer reading raised hopes that inflation might be peaking and pushed stock and bond prices sharply higher. A big drop in bond yields and the dollar also helped. While the major trend for stocks remains down, today's strong price gains together with a more favorable seasonal pattern may be the start of a yearend rally. Historically, stocks also do well after midterm elections which may also be helping to fuel today's gains.

Chart 1 shows the Dow Jones Industrial Average ($INDU) rising to the highest level in three months after clearing its 200-day simple moving average (SMA).  The Dow may be heading for a test of its August high.

Chart 2 which gives a more realistic picture of the overall market shows the S&P 500 Index ($SPX) rising to a two-month high. The SPX may be heading toward a test of its red 200-day SMA line.

Chart 3 shows the Invesco QQQ Trust (QQQ) gaining 6% today. Despite today's strong percentage gain, it's been the weakest part of the market owing to weak technology stocks which are benefitting from today's big drop in bond yields. The QQQ needs a close above its October high to turn its short- to intermediate-term trend higher.  Technology stocks are the day's strongest sector. While all 11 stock sectors are gaining ground, a few market groups are having an unusually strong chart day. They include Homebuilders, Materials, and Financials.

HOMEBUILDERS CLEAR 200-DAY SMA LINE. Today's big drop in bond yields is giving a boost to homebuilding stocks. Chart 4 shows the iShares U.S. Home Construction ETF (ITB) clearing its 200-day SMA and rising to the highest level since August. Homebuilders are extremely sensitive to the direction of bond yields and mortgage rates.

SO DO MATERIALS. Chart 5 shows the Materials Select Sector SPDR Fund (XLB) also trading above its 200-day SMA. The XLB may now test its August high. It's being driven higher by stocks tied to aluminum, copper, and gold.  Those commodity markets are benefiting from today's sharp drop in the U.S. dollar. Gold is also benefiting from the sharp drop in bond yields. Financials are also having an unusually strong day.

ASSET MANAGERS LEAD FINANCIALS HIGHER. Chart 6 shows the Financial Select Sector SPDR Fund (XLF) nearing a test of its August high after clearing its 200-day SMA. It's being led higher today by asset managers.

Chart 7 shows the Dow Jones U.S. Asset Managers Index ($DJUSAG) surging above its 200-day SMA and testing its August high.

Chart 8 shows Blackrock, Inc. (BLK) testing its August high as well.