DOLLAR INDEX STALLS AT 200-DAY AVERAGE -- GOLD ETF HITS SIX-MONTH HIGH -- ENERGY BPI TURNS UP WITH ENERGY STOCKS -- ALL THREE DOW AVERAGES ARE RISING -- TRANSPORTS ARE CLOSE TO NEW RECORD HIGH

FED STATEMENT WEAKENS THE DOLLAR ... Yesterday's Fed wording about moderating inflation pressures weakened the U.S. dollar (because it virtually ruled out any Fed tightening in the near future). This comes at an important time for the dollar. Chart 1 shows the U.S. Dollar Index (plotted through Wednesday) backing off from its 200-day moving average. I've suggested before that this would be a logical spot for the dollar to start to weaken. That helps explain why money has been moving back into commodity markets, and why gold and oil have been rallying.

Chart 1

GOLD ETF REACHES SIX-MONTH HIGH ... Chart 2 shows the StreetTracks Gold Trust Shares (GLD) trading at a new six-month high today. The last chart hurdle it needs to overcome is the July intra-day peak at 66.42. The point & figure boxes in Chart 3 show the uptrend that's been in place since last October. [Each box is worth 1%]. It shows this week's upside breakout as well. It also shows, however, the GLD is just below another resistance barrier near 66. Chart 3 requires a close at 66.74 or higher to signal a more sustained uptrend. Two things that would help gold are a weaker dollar and a continuing rebound in energy prices.

Chart 2

Chart 3

ENERGY BPI TURNS UP ... Last week I showed that the S&P Energy Bullish Percent Index had dropped into oversold territory near thirty. I pointed out that five previous bottoms in energy stocks had taken place from around that oversold level, but that the BPENER needed an upside three-box reversal to signal a possible bottom. Chart 4 shows that upside reversal taking place over the last week which is positive for energy stocks (and the commodity). The daily bars in Chart 5 show the Energy SPDR (XLE) trading back over its 50-day moving average today.

Chart 4

Chart 5

HOUSING STOCKS CONTINUE RISING ... The Fed also commented yesterday on signs of stabilization in housing. That statement may have contributed to a new eight-month high in the PHLX Housing Index (Chart 6). I expressed concern last week that rising bond yields could short-circuit the housing rally. Yesterday's drop in bond yields, however, appears to have extended the six-month uptrend. The new recovery in housing stocks is helping the market. The solid line below the chart is the HGX/SPX ratio. The RS ratio bottomed last November and has been rising since then. That means that homebuilding stocks have been helping lead the market higher, and are continuing to do so.

Chart 6

ALL THREE DOW AVERAGES ARE RISING ... It's always encouraging to see the three Dow Averages rising together. The Dow Utilities have been the weakest of the three (possibly owing to fears of rising bond yields). Chart 7, however, shows the UTIL trading back over its 50-day moving average and headed back toward its old high. The Dow Industrials are already trading at a new record high (Chart 8). The most impressive action of the three, however, belongs to the transports. Chart 9 shows the Dow Transports exploding through its November high for the second day in a row. The point & figure boxes in Chart 10 show the recent buy signal in the TRAN at 4900. It also shows the TRAN challenging its all-time high hit last May at 5000. [The transportation average closed today at 4998.75 which is just shy of its May 9 closing high of 4998.95 and its May 10 intra-day high of 5013.75]. As Arthur Hill suggested yesterday, a new record by the transports would remove any lingering concerns about Dow Theory which holds that a new high by the industrials must be confirmed by a new high in the transports. Rising utilities aren't part of the Dow Theory, but it's good to see them rising as well.

Chart 7

Chart 8

Chart 9

Chart 10