STEEL LEADS STRONG MATERIAL SECTOR -- US STEEL NEARS BULLISH BREAKOUT -- NEWMONT MINING TESTS $48 AS GOLD TOUCHES $500

MATERIALS SPDR TURNS UP ... Basic material stocks are the day's strongest sector. Chart 1 shows the XLB having already broken through its summer high to reach the highest level in seven months. The relative strength ratio, which peaked in March, has also bottomed. Most of today's buying is coming in the steel group. The strongest stock is U.S. Steel which may be nearing a bullish breakout of its own.

Chart 1

US STEEL CLEARS 200-DAY LINE ... The daily chart of US Steel has the look of a classic "double bottom" formation. The October low near 34 retested its July low near the same level. The stock has been rising on strong volume and today's upside gap has pushed it through its 200-day moving average. The last hurdle is the September peak at 45.83. A decisive close through that barrier would complete the double bottom and register a bullish breakout. Nucor has hit a record high.

Chart 2

NEWMONT TESTS OLD HIGH ... With gold having touched $500 today, I'm watching to see how bullion and gold stocks deal with that important number. One that I'm watching especially closely is Newmont Mining. That's because it's the biggest stock in the XAU. Its daily chart shows that the stock has yet to achieve a bullish breakout and is still testing is late September high near 48. Upside volume over the last couple of weeks has been good and long-term odds favor an eventual upside breakout. Over the short-run, however, I remain a little nervous about the $500 barrier in bullion and the $48 barrier in Newmont. The weekly bars in Chart 4 show that NEM also needs to clear major overhead resistance at 49.52 to resume its major uptrend. I believe it will do so in time and I'll feel a lot better about the stock (and the gold group) when it does. Strong economic numbers this morning, and rising bond yields, are boosting the dollar today.

Chart 3

Chart 4