HIGHER COMMODITY PRICES ARE PULLING BASIC MATERIAL STOCKS HIGHER -- COPPER AND GOLD ARE LEADING THE WAY

MONEY IS FLOWING BACK INTO COMMODITY STOCKS... With commodity prices climbing again, it was just a matter of time until basic material stocks started to climb as well. Thanks to jumps in the price of copper and gold, the Materials Select SPDR (XLB) is the day's strongest sector. Chart 1 shows the XLB climbing back over its 200-day moving average and close to exceeding its early May peak. Its relative strength ratio has also started to climb for the first time since peaking in mid-March. That's a sign that money is starting to rotate back into commodity-related stocks. Chart 2 shows Phelps Dodge helping lead the XLB higher. PD is benefiting from a sixteen-year high in the price of copper. Freeport McMoran Copper & Gold is benefiting from gains in both copper and gold. Chart 3 shows FCX trading back over its 200-day average and a two month high. A higher gold price is giving a boost to gold-mining shares.

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GOLD IS TESTING 2005 DOWN TRENDLINE... A $5 jump in the price of gold today has put it right up against its 2005 down trendline. A decisive close through $435 would confirm an important turn to the upside in the price of bullion. That's helping make gold stocks one of the day's strongest groups. Chart 5 shows the Gold & Silver (XAU) Index trading at a two-month high. Its relative strength ratio is turning up as well. The XAU/SPX ratio still needs to clear its eight-month resistance line, however, to confirm a major turn to the upside. Its longer term chart shows that the recent upturn is happening at a major support point.

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XAU AND NEWMONT ARE AT BOTTOM OF TRADING RANGES... I recently showed that the XAU Index was starting to bounce off the bottom of a huge trading range dating back to the start of 2004. That puts it in a major support area and a logical spot for new buying to emerge. That picture is confirmed by the chart of Newmont Mining which is the biggest stock in the XAU. Chart 7 shows NEM also bouncing off major chart support formed during the spring of 2004. NEM has climbed back over its 50-day moving average and is also one of the today's basic material leaders.

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