COMMODITIES REBOUND AND PULL RELATED STOCKS WITH THEM -- THE XLE AND XAU BOUNCE OFF 200-DAY LINES
COMMODITIES BACK OVER 50-DAY LINES ... Commodity markets are staging a comeback attempt today and the rally is pretty broad based. Fourteen of the nineteen commodity markets are in the black today. The biggest gainers are copper (+11%), silver (+5%), gasoline (2%) and gold (+2%). Chart 1 shows the Reuters/Jefferies CRB Index rising over 8 points today. That puts it back over its 50-day line for two consecutive days. Chart 1 also shows that despite all the media talk about the bursting of the commodity bubble, very little damage has been done to the major uptrend. In fact, the May drop retraced about half of the March/May advance which qualifies as a pretty normal pullback. Chart 2 shows the same for crude oil. The key commodity remains in a short-term trading range between $75 and $69. Today's bounce of two dollars puts it back over $72. Notice that the pullback bounced off its 50-day line and its early May low just over $68. In addition, it found support along its January high near $69. So far, the chart pattern doesn't support the idea that a major top has been seen. In my view, both markets would have to break their 200-day averages and their March lows to signal the formation of a major top. They're nowhere near those levels.
Chart 1
Chart 2
SILVER BOUNCES OFF CHART SUPPORT ... The chart of silver shows no chart damage either. Chart 3 shows that silver has also entered into a five-week trading range between 15 on the upside and 12 on the downside. The two horizontal lines define the trading range. Silver has climbed back over 13 today which keeps it over its 50-day average as well. Chart 4 translates that action into the Silver iShares (SLV). It also shows SLV bouncing off the bottom of that trading range. That may carry good news for gold which is also bouncing today. The two markets usually trend in the same direction. With the benefit of some hindsight, it's now clear that silver's inability to hit a new high a couple of weeks ago (near 15) was a hint that both markets were due for a pullback. Silver's ability to hold the bottom of its trading range may be a hint that both markets are ready to bounce again. Chart 5 shows the StreetTracks Gold Trust Shares (GLD) climbing the equivalent of $16. Its chart pattern isn't as clearly defined as silver. But the GLD is trading above its 50-day average and its lower Bollinger band. It needs to clear the 20-day moving average to strengthen its short-term trend. The daily stochastic lines also appear ready to turn up from oversold territory near 20. Today's commodity action is bringing some relief to stocks tied to those commodities which are also bouncing off support levels of their own.
Chart 3
Chart 4
Chart 5
GOLD AND ENERGY SHARES BOUNCE OFF 200-DAY LINES ... Today's rally in energy prices is coming just in time for energy shares. The next chart shows the Energy Sector SPDR (XLE) bouncing off its 200-day moving average. That long-term support line hasn't been broken in three years. The XLE is the day's strongest sector SPDR. Its daily stochastic lines are turning up from oversold territory. Precious metal stocks are doing the same. Chart 7 shows the Gold & Silver (XAU) Index bouncing from just above its 200-day line. Both indexes, however, still need to regain their 50-day lines to strengthen their short-term trends. Strangely enough, today's commodity rally is also bringing some relief to an oversold stock market. But most of the strength is concentrated in commodity stocks.
Chart 6
Chart 7
