ALUMINUM, GOLD, AND STEEL STOCKS LEAD BASIC MATERIALS TO NEW HIGH-- NEWMONT MINING HITS A NEW RECORD

U.S. STEEL NEARS RECORD HIGH... Stocks tied to basic materials continue to gain ground on the back of the ongoing commodity rally. The Materials Select SPDR (XLB) was the only sector ETF to hit a new 52-week high today while most others fell. One of the day's biggest percentage gainers was U.S. Steel which gained 3%. Chart 1 shows the stock reaching the highest level in nearly a year. The stock is nearing a challenge of its early 2005 peak at 63.42. Its relative strength ratio bottomed last October and is now trading at a new ten-month high. The monthly bars in Chart 2 paint an even more impressive picture for the big steel stock. After having retraced about half of its 2003-2005 advance, the stock is nearing a new record. That longer-term chart also shows that the stock has been outperforming the S&P for the last three years.

Chart 1

Chart 2

ALCOA SHOWS NEW LEADERSHIP... Up until recently, Alcoa had been a laggard in the materials group. Not anymore. Today's 5% gain made it the top percentage gainer in the commodity-oriented group. The weekly bars in Chart 3 show the stock trading at the highest level in ten months and having broken a two year down trendline. The next upside target looks to be the late 2004 peak near 34. The relative strength ratio for the big aluminum producer has also broken a major down trendline that started at the end of 2003. Absolute and relative strength is a bullish combination.

Chart 3

NEWMONT MINING HITS ALL-TIME HIGH ... Gold stocks continue their historic surge as well. With gold hitting a new 25-year high today (and silver a 22-year high), gold stocks are still on a tear. The PHLX Gold/Silver (XAU) Index climbed another 3% today to a new ten-year high. As a result, Newmont Mining has maintained a leadership role in the materials group. Its 2% gain today placed it third in the XLB rankings. From a charting standpoint, Newmont was the most impressive of the three leaders. The monthly bars in Chart 4 show Newmont trading over 60 for the first time in its history. That puts it above its previous record at 59.43 which was hit during 1996.

Chart 4

INVESTING FOR INFLATION... The market wasn't too thrilled about the Fed's statement accompanying today's expected rate hike. It removed "measured" from its wording and suggested that it might have to keep raising rates to combat budding inflationary pressures. The Fed cited rising energy prices as a potential inflationary threat. It could have gone a lot further and mentioned price increases in most other commodities. With commodity indexes at or near record highs, one can't help but wonder how long it will take for raw material inflation to start spreading to the rest of the economy. From an investing standpoint, there's no need to wait for that to happen. Inflation sensitive stocks are where most of the money is being made right now.