MONEY FLOWS INTO COMMODITY STOCKS AS DOLLAR WEAKENS -- CANADA IS GAINING FROM RISING CURRENCY AND COMMODITY PRICES
OIL CLIMBS OVER $63... Crude oil (and most other commodities) are starting the new year on a strong note. Crude oil is climbing more than $2 and is trading over $63 for the first time in more than two months. Gold is trading $11 higher while the CRB Index is climbing more than four points. Not surprisingly, stocks tied to commodities are among the day's strongest market performers. Energy is the day's strongest sector. As has been the case recently, oil service is leading the energy complex higher. Chart 1 shows the Oil Service Holders (OIH) bouncing strongly today after staying well above their 50-day moving average and chart support along their September highs. Chart 2 shows the Energy Sector SPDR (XLE) bouncing impressively off its 50-day line. The rising XLE/S&P ratio line shows that energy is starting to outperform the general market for the first time since late September. That's good for energy stocks, but not necessarily for the market. Gold stocks are having another strong day as well with gains averaging 5% on the first day of trading in the new year.
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GOLD STOCKS HIT NEW MULTI-YEAR HIGHS ... Gold stocks continue to reach new multi-year highs. Charts 3 and 4 show the XAU and the HUI indexes trading at new highs again today. Both indexes recently completed major bullish breakouts on their long-term charts. Not only are gold stocks outperforming the rest of the market, they're also leading the price of bullion higher. The HUI/GLD ratio at the bottom of Chart 4 has just broken out to a new high. That means that gold stocks are rising faster than bullion. That's a bullish sign for gold which is trading more than $11 higher today. Chart 5 shows the Gold Trust Shares (GLD) nearing a test of their early December highs. With gold stocks already in new high ground, odds are pretty good that bullion will do the same shortly. Mining stocks like Newmont Mining and Phelps Dodge are helping lead the materials sector higher. While inflation-sensitive stocks are rising, rate-sensitive stocks like financials and retailers are under pressure. Transportation stocks are also coming under pressure owing to surging energy prices. Airlines are down 3% for the day.
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CANADA GAINS FROM RISING COMMODITIES AND CURRENCY ... Part of the surge in commodity prices today may be tied to a drop in the U.S. dollar owing to news of a slowing manufacturing sector in the states. That may also explain why foreign markets are much stronger than the U.S. today. [A weaker dollar favors commodities and foreign markets]. One of the strongest countries is Canada and for good reason. As an exporter of natural resources, it benefits from rising commodity markets. Foreign investors also benefit from a strong Canadian Dollar. Chart 5 shows that the Canadian Dollar has been one of the strongest of the foreign currencies and is bouncing off its 50-day average. That's good for American investors. Chart 6 shows the Canadian iShares (EWC) breaking out to a new record high. The EWC/S&P 500 ratio is doing the same. Since foreign ETFs are quoted in dollars, they benefit from a rising local stock market and a stronger local currency. Canada has both. It also has rising commodity prices. Foreign ETFs are especially strong today with several showing gains of 2%. That suggests that foreign stock outperformance which prevailed in 2005 is continuing into the new year. Japanese iShares (EWJ) are hitting new 52-week highs even with the Japanese stock market closed.
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