MATERIALS ETF REACHES NEW HIGH AGAIN LED BY CHEMICALS, STEEL, AND GOLD

CHEMICALS ARE LEADERS... The last time we looked at the Materials Select Sector SPDR it was just starting to bounce off its late September low and its 200-day moving average after having a bad October. Since then, the group has recovered and more. Chart 1 shows the XLB breaking out to another record high today. Its relative strength line has started rising again as well. Today's upside leaders are in the chemical, gold, paper, and steel groups. The fact that most commodity markets (except for oil) are rallying again is one of the side-effects of a falling dollar. Gold prices are up $3.00 today and hitting another 16-year high. Chemicals may be getting some help from falling oil which is down another dollar today. Chart 2 shows the Dow Jones Chemical Index moving in lockstep with the Materials SPDR.

Chart 1

Chart 2

BEMIS IS TODAY'S CHEMICAL LEADER... Today's chemical leader is Bemis which is hitting a new four-month high after recently breaking above chart resistance at its September/October highs. Its relative strength line is just starting to turn up. The monthly bars in Chart 4 put the latest upturn in better perspective. They show that BMS has been consolidating for two years beneath chart resistance around 28.50. It looks like the stock is going to make another run at its old high. I think it'll break through this time. Some other chemicals have already done so.

Chart 3

Chart 4

DOW AND EASTMAN CHEMICAL HAVE BROKEN OUT... Dow Chemical has just broken through its early 2000 peak at 45 to reach a new record (Chart 5). Its relative strength line is doing the same. Eastman Chemical has just exceeded its 2002 peak near 48 to initiate a new uptrend. Its relative strength line is also rising. Both charts are bullish and show that there's big money behind the chemical surge. Since oil is used in the production of chemicals, it may not be a coincidence that these chemical breakouts are taking place as oil has started to drop.

Chart 5

Chart 6

STEEL AND GOLD LEADERS... Gold and steel stocks are rising again as well. US Steel has just broken through its 1998 high near 42.5. Its relative strength line continues to rise. With gold reaching $436 today (a 16-year high) gold stocks are climbing. The biggest stock in the XAU is Newmont Mining. The monthly bars in Chart 8 show NEM on the verge of challenging its 2004 high near 50. I expect it to break through. That's a direct result of the falling dollar and a new record high in the Euro.

Chart 7

Chart 8