OVERBOUGHT DOLLAR IS DROPPING AS FOREIGN CURRENCIES REBOUND -- THAT'S GIVING A BOOST GOLD, OIL AND OTHER COMMODITIES -- GOLD AND OIL STOCKS ARE STRONG

CRUDE RESUMES UPTREND -- ENERGY STOCKS LEAD... Crude oil is rallying more than a dollar today and appears to be resuming its recent uptrend. Chart 1 shows that this week's minor pullback in oil found support along its mid-December peak at 46.65. That's what should happen in an uptrend. In addition, crude is still trading above its 50-day moving average. That's not too surprising considering that energy stocks have been one of the top market sectors for the week and are Friday's top group. Oil service stocks remain the energy leaders. Chart 2 shows the Oil Service Holders (OIH) continuing to climb after completing a bullish "symmetrical triangle" which is identified by the two converging trendlines. The ability of the OIH to bounce off the upper line is also a good sign. Once a resistance line has been exceeded, it should become a new support line. Chart 2 also shows a rising relative strength line for the oil service group. It's been the strongest industry group during January. Chart 3 shows the Energy Select Sector SPDR (XLE) moving up as well. This week's dip has bounced off its 50-day average. It's trying to get above its late November peak. I think it will do it. Notice the upturn in its relative strength line as well. Heating oil is up more than 3% today and is leading the energy complex higher. Frigid weather in the northeast is boosting that and natural gas prices. The energy complex is leading the CRB Index higher today. Gold is up more than $4.

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OVERSOLD XAU INDEX BOUNCES OFF 200-DAY AVERAGE... Gold stocks are up more than 2% today. Chart 4 shows the Gold/Silver (XAU) Index bouncing off its 200-day moving average. Its daily stochastic lines are turning up from oversold territory under 20. And its daily MACD lines have turned positive for the first time in two months. Chart 4 also shows the XAU rising above its November/January down trendline. Gold is also rebounding from an oversold condition. Chart 5 shows the Gold ETF (GLD) moving close to a two-week high. Its daily indicators have also turned up. GLD is close to breaking its down trendline as well. Since the XAU has already cleared that resistance line, odds are good for bullion to do the same. That's because gold stocks usually lead bullion higher during a rally. Gold and other commodities are gaining from a pullback in an overbought dollar and a rebound in an oversold Euro.

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FOREIGN CURRENCIES REBOUND... The dollar has been rebounding during January. It hasn't gained much against the yen however. The next chart shows the Japanese yen dangerously close to a new high. The Canadian Dollar has pulled back more than the yen, but is finding support along its December low. The Euro has been the weakest of the three. But its short-term oscillator is in oversold condition. All three are rallying today as an overbought dollar is pulling back. That's helping to support today's rebound in gold and the other commodities. Chart 9 shows the Euro finding support along the peak formed at the start of 2004 at 129 (see circle). That's a logical spot for new buying to emerge. That's because a previous peak is supposed to act as a new support level (see arrow).

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