COMMODITIES HAVE BIG DAY -- CANADIAN DOLLAR TURNS UP -- CANADA ETF IS OUTPERFORMING US ONCE AGAIN -- ALL POINT TO A WEAKER DOLLAR

CRB INDEX CLIMBS BACK OVER 50-DAY LINE... Earlier today I wrote about new selling in the U.S. dollar which gave a boost to gold and oil. In fact, fourteen out of seventeen commodity markets rose today and pushed the CRB Index up 4.39 points. As Chart 1 shows, the CRB has been consolidating above its 200-day moving average. That's an important support level. Today's upmove pushed it back over its 50-day line. In order to turn its trend back up, however, the CRB still needs to clear its December/January high near 288. Among today's biggest percentage gainers were heating oil and copper. That gave a boost to gold shares, oil stocks, and basic materials which were today's top performing groups.

Chart 1

CANADIAN DOLLAR AND STOCKS RALLY ... When studying commodity price trends, it's a good idea to keep an eye on Canada. For two reasons. One is because Canada is a big producer of natural resources and tracks commodity prices closely. Another has to do with the Canadian Dollar. It also tends to correlate with commodity price trends. That's because the CDW trends in the opposite direction of the U.S. dollar. Charts 2 and 3 carry several messages. One is that both Canadian markets peaked at the end of November (see red circles) and have fallen in the two months since then. Their peaks coincide with the peak in the CRB Index shown in Chart 1. The peak in the Canadian dollar also anticipated the rebound in the U.S. currency that started a month later. Both Canadian markets rose nicely today. The CDW is finding support above its 200-day moving average. In addition, its 9-day RSI line is turning up from oversold territory under 30, and showed a positive divergence during the last downleg in the currency (see arrow). If the "loonie" is bottoming, that would suggest that the first quarter rally in the U.S. currency could be ending. A selloff in the U.S. dollar was the main catalyst in today's commodity buying. That would explain today's strong move in the Canadian stock market.

Chart 2

Chart 3

CANADIAN ETF STARTING TO OUTPERFORM US ... Chart 3 shows today's strong rally in Canada iShares (EWC). Next to Australia (another natural resource economy), Canada was the day's strongest global market. The EWC jumped impressively back over its 50-day moving average. Its relative strength line (vs. the S&P 500) also shows that Canada is starting to outperform the U.S. for the first time in two months. If today's trends continue, that would hint at several cross currents in the various markets. For one thing, it would suggest that commodity prices are getting ready to resume their uptrend. It would also suggest that the first quarter rally in the U.S. Dollar is ending. Canada would benefit from both of those trends. As would most stocks tied to the commodity markets.