MATERIALS ETF CLEARS 50-DAY LINE -- ROHM AND HAAS SURGES -- MORE OIL INDEXES BREAKOUT -- GOLD STOCKS STILL FLAT
MATERIALS ETF HITS MONTHLY HIGH ... Second only to energy, basic material stocks are showing good relative strength. Chart 1 shows the Materials Select Sector SPDR (XLB) trading back over its 50-day average and also at the highest level since the first week of January. Its relative strength line along the bottom of the chart has also turned higher. That puts the materials sector in a potential leadership role in what appears to be a new market rally. Several stocks in the group are trading at new highs.

Chart 1
MATERIAL HIGHS ... Three of the top percentage material gainers over the last month are shown below. Allegheny Technologies hit a new multi-year high on Monday on strong volume. Its RS line also reached a new high. It's now consolidating around its breakout point at 23. In a strong chemical group, Dow Chemical is breaking through its fourth quarter high near 51. That's a new record. Its RS line is also breaking out. Nucor is benefiting from a strong steel group. The stock has just reached a new record high as well. Notice its rising RS line.

Chart 2

Chart 3

Chart 4
ROHM AND HAAS TESTING 2000 PEAK... The stock most responsible for today's surge in the materials ETF is Rohm and Haas. It daily chart shows the stock surging more than 6% today on huge volume. Its RS line is surging as well. That's a very bullish combination. The monthly bars in Chart 6 show that the stock is trading at the highest level in nearly five years, and is nearing a challenge of its all-time highs in the 46-47 region. Its monthly RS line bottomed in 2000, but has been flat for the last two years. It looks like the monthly RS line is starting to move higher. That increases the odds for an upside breakout.

Chart 5

Chart 6
MORE ENERGY BREAKOUTS ... I recently showed the Oil Service Index (OSX) leading the energy sector to a new 52-week high. The rally is broadening out. Chart 7 shows the AMEX Oil Index (XOI) breaking out this week as well. The Natural Gas Index is close to doing the same. Their rising relative strength lines testify to energy's leadership role in 2005.

Chart 7

Chart 8
GOLD STOCKS ARE OVERSOLD, BUT STILL UNDERPERFORMING ... With bullion retesting its recent low near $420, gold stocks haven't shown any bounce at all. The XAU Index has slipped beneath its 200-day moving average, but is still holding at support along its September low. The daily RSI and MACD lines have turned up, but the XAU hasn't. Its falling relative strength line shows that gold stocks are still underachievers. It's doubtful that gold or gold stocks will do much on the upside until the dollar rally shows some signs of ending.

Chart 9