Investors returned from a forced wintry holiday to build on last Thursday’s rally and Friday’s attempted turn-around. If you look at the top performing sectors on the day, you’ll see a familiar theme. Basic Materials and Energy provided excellent strength, supported by Technology and, finally, Financials. From the start, commodities were the catalyst, which were responding to a weaker Dollar. Last Friday’s weakness stemmed from China raising the reserve requirement at banks, which led to a “slower growth” story. That hurt commodities. Yesterday wasn’t a “growth” story, but a currency one. The Euro-zone finance ministers will meet this week and are expected to finally present some details as to how they are going to prevent a failure of Greece’s debt. Greece, for its part, is insisting they don’t need a bailout, but it is clear that Greece is just the tip of the iceberg and the EU needs to have a plan that would encompass more than just Greece, should it come to that. The potential aided the Euro in a nice little rally, which put pressure on the Dollar Index, driving it back below 80. Technically, the Dollar Index has had a strong, steady rise in a very well-defined uptrend channel. The “V” base from the December high to January low projected to 80.60, which we kissed twice. The uptrend line off of the January low crossed at 80.107. Monday’s decline in the Dollar Index broke that uptrend line. Support comes in at the December high of 78.50.

The Dollar wasn’t just down, but was breaking very short-term support, which means we should expect further weakness. That led to strength in gold and crude. In fact, gold was up nearly $30 in the early going, spreading inspiration beyond the precious metals to energy commodities. Crude, which recently broke $70 intra-day, has pushed back above its 10-week moving average to challenge the early February rally high of $78.04. This will be important short-term technical resistance for crude, with overhead supply becoming more significant up to $80. Still, the moves in gold and crude were sufficient to spur a rally in commodity-based equities. These are old leadership groups, so their strength was taken as a good sign.

The Dow was bolstered by positive earnings results from component Merck MRK (+2.0%). However, the index still is below the key technical resistance at 10,270. However, there was excellent support from two key components, Technology and Financials. Tech seems to be getting a boost from Mobile World Congress 2010. HTC, the #4 mobile handset maker announced a competitor to Google’s GOOG (+1.5%) Nexus phone called “Desire”. This is one of those situations where interest in an area is good news for all players. Intel Corp. INTC (+1.4%) provided the Semis, which have been doing very well over the course of the past week, with added upside incentive after it was upgraded to a “buy” over at Auriga. The Philly Semiconductor Index, SOX, moved up to challenge its 10-week moving average and its late January attempt at a rally at 342. There is resistance in this area. The recent strength in Tech has outpaced the strength, if you want to call this little bounce “strength”, in the broader indices. It has been excellent leadership, on both the upside and on the downside.

We do need to give some credit where credit is due. Barclay’s PLC reported net profits were up more than 100% in 2009, including the sale of a unit. The stock was up 7% in London trading. Impairment charges were up by 50%, but that was less than anticipated. In addition, the company said charges would decline modestly in 2010. This had been a tough quarter for banks. Not all were as “clean” as investors had hoped. The outlook remains mired in the valuation of assets and liabilities. Bad debts are still a growing problem. However, Bank of America BAC (+4.9%) said that they made “significant gains” in modifying mortgages. The stock led the Dow higher. In short, the banks are not willing to say that they are out of the woods quite yet, and that put investors on the defensive. The reaction was disappointment. The Financial Sector SPDR fell to a 6-month low, fractional though it was. The 200-day was violated on an intra-day basis, but the index always managed to post a comeback rally and close above a level that would be considered a “definitive breakdown”. The index was below its January low by breaking 14. On Barclay’s earnings and positive outlook, the XLF moved back above 14 to close at 14.24, up 2.1% on the day. This is just the index moving back up above a support line that broke. It faces exceptional overhead supply getting thick at 14.46 and not out of trouble until able to top the January peak at 15.40 on an intra-day basis. Financials have major obstacles, to be sure. However, yesterday’s strength found support in the Financials, and that has not been the case since September/October of last year.

Overall, the market had a bit of a relief rally. Where the economic data are not all that market moving this week, the Empire State Index did come in with surprising strength, rising to 24.91 from 15.92. Expectations were for 18.00. New Orders dipped to 8.8 from 20.5, but it is still in positive territory. Shipments were 15.1 versus 21.1, but still positive. Here’s the kicker! Inventories were 0.00 after being at -17.33. For the first time, manufacturers were keeping pace with orders. That indicates potential inventory rebuild adding to GDP and profits in Q1. It isn’t a big survey, but a positive indication nonetheless.