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Forget Geithner - Today's Real Show Is On The Trading Floors

Stocks are off their highs but a global commodity rally sucks in more buyers on weaker dollar, China stimulus, less fear; S&P 500 approaches May highs.

Forget Geithner; the real show is on the commodity and stock trading floors today.

Call it the reflation trade, if you want, but buyers are being forced into the markets.

Weak dollar. The Dollar Index is at its lowest level since December, which makes dollar-denominated commodities cheaper to buy abroad.

The CRB Index, a basket of commodities, is at its highest level since December as key commodities have pass levels reached in early May:

Oil: 6-month high

Gasoline: 7-month high

Gold: 2-month high

Wheat: 5-month high

Commodity-based stocks rallying, now taking leadership from financials.

The SIG Coal Index, a basket of coal stocks, pushed to its highest level since November

the CBOE Gold Index, a basket of gold stocks, hit the highest level since last July.

The S&P Materials Index, a broad basked of commodity-based stocks, is also at its highest level since October.

The bottom line: the combination of strength in financials and commodities is pushing the S&P to just a few points shy of 929, which was the May closing high for the year.

A close over 929 would be a technical positive. Also bear in mind that the S&P is near its 200 day moving average, so moving over those levels also would be positive technically.

Less fear. As stocks have held up under the massive bank recapitalization program, bullishness has been increasing.

Investors Intelligence reported that 33.7 percent of the financial newsletter writers they surveyed were bearish, the lowest level of bearishness since January 2008.

Also, today's Merrill Lynch Survey of Fund Managers reported that:

  1. 7 of 10 global fund managers say the world economy will improve in next year;
  2. Cash holdings are dropping, falling to 4.3% vs. 4.9% in April;
  3. Cyclicals and emerging markets are gaining in popularity.

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