FALLING YEN HURTS JAPAN -- CANADIAN DOLLAR HELPS CANADA -- BASIC MATERIALS AND OIL SERVICE ETFS TEST 50-DAY LINES -- GOLD STOCKS ARE OVERSOLD

JAPANESE YEN SLIPS UNDER 200-DAY LINE ... With the U.S. Dollar in a rally mode, most foreign currencies have been selling off of late. Among the major currencies, the Japanese yen has been hit the hardest. Chart 1 shows the yen falling under its 200-day average and testing chart support at its June high near 93. That has caused selling in the Japanese iShares which are influenced by both the direction of the the Japanese stock market and its currency. Both are down today. Chart 2 shows the EWJ gapping down today to test its February low. That's an important test of support. Most of the Asian markets have come under selling. The opposite is true of Canada.

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CANADA IS BOUNCING ... Because of its strong ties to commodity markets, Canada has fared better than Japan. Although the Canadian Dollar has corrected to the downside, it's holding up better than most other foreign currencies. Chart 3 shows the CDW gapping up off its 50-day moving average today. That's helping the boost Canadian iShares. Chart 4 shows the EWC also bouncing off its 50-day average and chart support along its December high. New buying in Canada may be a sign of renewed interest in commodity-related assets in general.

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BASIC MATERIALS AND ENERGY ARE BOUNCING AGAIN ... Whenever a stock group pulls back, it's important to watch its 50-day moving average. That's usually the first big line of defense during a correction. And two key commodity-related ETFs are finding support at their 50-day lines. Chart 5 shows the Oil Service Holders (OIH) surviving a test of that support line and may be starting to climb again. Chart 6 shows the Materials Sector SPDR (XLB) finding support at its 50-day line and its fourth quarter peak near 30. That may also be suggesting that the recent pullback in commodity markets is nearing completion. Even gold stocks are starting to look oversold.

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GOLD STOCKS LOOK OVERSOLD... Gold stocks have suffered the most during the recent dollar rally. The XAU Index has fallen below its moving average lines and initial chart support at 96. That probably contributed to more profit-taking in the group. Although there's no sign of a bottom yet, the 9-day RSI line has reached oversold territory under 30. It's doubtful that gold stocks will rally much, however, until the dollar starts to weaken again.

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