WEAKER DOLLAR BOOSTS GOLD AND BASIC MATERIAL STOCKS -- MARKET INDEXES TESTING MOVING AVERAGE LINES
EURO HITS THREE-MONTH HIGH ... I've recently shown the U.S. Dollar Index rolling over to the downside and have suggested this could have a positive impact on gold and other commodity markets -- as well as their related common stocks. The dollar fell again today. Chart 1 shows the Euro reaching a three-month high against the greenback. A higher Euro (and lower dollar) pushed gold prices ten dollars higher today. Chart 2 shows bullion closing back over $400 and within striking distance of last week's high. That boosted gold stocks and basic materials which had a relatively strong day. The CRB Index gained 2.31 points.
Chart 1
Chart 2
XAU MAY BE NEARING UPSIDE BREAKOUT ... The Gold (XAU) Index gained 3.9% to score the day's biggest stock gains. Its daily chart shows the XAU trading over its 50-day average and in position to challenge its late May peak. Its relative strength line is also nearing an upside breakout. To really take a turn for the better, however, the XAU still needs to clear its 200-day line. Two of its top gainers were Freeport McMoran and Newmont Mining. FCX was one of the top gainers in the S&P 500.
Chart 3
FREEPORT AND NEWMONT HIT THREE-MONTH HGHS... Freeport McMoran Copper & Gold and Newmont Mining are hitting new three-month highs today on the back of the weaker dollar and rising gold prices. While volume picked up in both gold stocks, Newmont saw the heaviest volume in eight weeks. That's a good combination. Their relative strength lines also scored upside breakouts. As recently as June 24 I showed that the XAU Index had declined into a major support zone and was deeply oversold, and suggested that was logical spot for some new gold buying to occur. In that same Market Message, I also suggested that a falling dollar was starting to boost the CRB Index.
Chart 4
Chart 5
CRB INDEX TURNING UP... This is the same headline I used on June 24. The CRB Index has been in a downside correction for several months. That was mainly due to a rally in the dollar. The CRB has started to find support near its 200-day moving average. Today's CRB gain of 230 points put it back over its 50-day average. In my opinion, the dollar rally has ended and, along with it, the downside correction in the CRB Index. One way to play a commodity rally is through the Materials ETF.
Chart 6
MATERIALS ETF SHOWS RELATIVE STRENGTH ... The Materials Select Sector SPDR had the biggest sector percentage gain today. Three of its top stocks were copper and gold stocks -- Freeport McMoran, Newmont, and Phelps Dodge. I've suggested before that this ETF is one way to participate in any rally in commodity markets and their related stocks.
Chart 7
DOW DIAMONDS IN NEUTRAL ZONE... The market recovered some lost ground today, but on lighter volume. The daily bars in Chart 8 show the Dow Diamonds trading over their (red) 200-day average. That means the long-term trend is still up. They're also, however, trading beneath the (blue) 50-day average. That means the short-term trend is still down. The Nasdaq Composite is the only major stock index trading under its 200-day line -- but not by much (Chart 9). We're maintaining a more cautious stance until the battle of the moving averages is resolved.
Chart 8
Chart 9
