COMMODITIES AND THEIR STOCKS BOUNCE BACK -- CRUDE HITS $75 FOR FIRST TIME -- NASDAQ 100 SUFFERS DISTRIBUTION DAY
CRB INDEX STAYS ABOVE BREAKOUT POINT ... Yesterday's bout of commodity profit-taking (which was concentrated in metals markets) may have been a one-day affair. At least that's what today's strong bounce back suggested. The CRB Index regained 4.65 points today to close at a new record high. Today's commodity leaders were in the energy and metals markets. Copper hit a new record high while gold and silver jumped sharply. Energy markets continued their historic climb. Crude oil closed $1.50 high to close over $75 for the first time in history. Today's strong commodity comeback made basic materials, energy, and precious metal stocks the top performers.
Chart 1
$75 OIL BOOSTS ENERGY SHARES ... The last time I showed a chart of crude oil was on April 11 as it was nearing its old high. I described the two converging trendlines as a bullish "symmetrical triangle" which usually means an eventual upside breakout. And that's what we've gotten. One way of arriving at the next upside target is to measure the height of the triangle and then project that up from the breakout point. That yields a measurement to $83. I'll settle for $80. Energy stocks also held their bullish breakouts through the end of the week. Chart 3 shows the Energy Sector SPDR (XLE) closing at a new record high (as did the Oil Service Holders). On the heels of the Thursday's high-volume price dip, Friday's upside volume was disappointingly light. We'll keep an eye on that. The 9-day RSI is in overbought territory over 70, but the daily MACD lines are still positive. Chartwise, the XLE stayed over its January peak near 58. Gold also bounced back smartly.
Chart 2
Chart 3
GOLD ASSETS SNAP BACK ... After one of the worst day's in recent memory, precious metals responded with one of their best days. The streetTracks Gold Trust Shares (GLD) gained the equivalent of $22 today in bullion terms. It also came close to exceeding yesterdays intra-day high. That's pretty impressive. (Silver snapped back as well). As was the case in oil, today's upside volume was lighter than yesterday's downside volume. That bears watching. Price-wise, however, the trend is still up. In my view, the GLD would have to violate yesterday's intra-day low at 60.44 to signal a short-term top and justify some profit-taking. Chart 5 shows the Gold & Silver (XAU) Index regaining lost ground today. That keeps its uptrend intact as does the rising MACD lines. On Wednesday, I showed the XAU closing at a new record high. Thursday's pullback did prevent a close at a new record. Although I still believe new highs are inevitable, a decisive upside breakout in the XAU was put on hold awhile longer. Newmont Mining was today's percentage leader in a strong basic materials group. Chart 6 shows NEM testing initial resistance near 58. It's the biggest stock in the XAU and has been lagging behind the group. A close over 58 would set up a challenge of its January high.
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Chart 6
WEEKLY SUMMARY... Despite Thursday's steep selloff, the major uptrend in commodity prices is still intact. That's especially true of crude oil which closed at a new record high. The U.S. Dollar is threatening its 2006 low. A new 2006 low (which I believe is likely) would strengthen commodities even further and continue the flow of funds into foreign stock ETFs. Bond yields ended back over 5% as bond traders build in higher inflation expectations. The stock market has managed to shake off most of that bad news. However, we're entering the last week of April which is the last month in the "best six months" of the year that lasts from November through April. After that, seasonal trends turn less friendly. With most of the major market indexes hitting new highs, it's hard to find any convincing signs of market top. One that I'd keep an eye on, however, is the Nasdaq 100. Chart 7 shows the Nasdaq 100 Shares (QQQQ) falling on Friday on rising volume. No serious chart damage was done; but no upside breakout has taken place either. When a market top begins, it's usually in the technology sector. That's another reason why I'd watch the QQQQ for any further signs of deterioration.
Chart 7
