ENERGY SPDR HITS NEW RECORD -- BUT OIL SERVICE HOLDERS MAY BE BETTER VALUE -- GOLD INDEX NEARS BULLISH BREAKOUT -- FREEPORT MCMORAN COPPER AND GOLD HITS NEW RECORD HIGH -- WYETH AND PHARM HOLDERS BREAK RESISTANCE

BOTH ETFS ACHIEVE BULLISH BREAKOUTS ... Energy stocks continue their upward climb. The Energy SPDR (XLE) broke through its December high at 62.13 to reach a new record high (Chart 1). That's not all. The XLE/SPX ratio (top of chart) has broken an eight-month down trendline (black arrow) extending back to last August. That puts energy squarely back in a leadership role. Oil Service Holders (OIH) are achieving a bullish breakout of their own although not as impressive. Chart 2 shows the OIH breaking through its December high near 150 to reach a new ten-month high. It's relative strength ratio has turned up as well. Although the XLE has the stronger chart pattern, the OIH may present a better value. Part of the reason is that it's the cheaper of the two ETFs. Another is that it's starting to do better than the XLE. Chart 3 plots a ratio of the XLE divided by the OIH. The ratio had been falling since last May through December as the OIH badly underperformed the XLE. The XLE/OIH ratio bottomed in January, however, and is starting to climb. In my view, that makes the OIH a better value at this point in time.

Chart 1

Chart 2

Chart 3

GOLD STOCKS NEAR BULLISH BREAKOUT ... Gold and silver stocks may be nearing a bullish breakout as well. Chart 4 shows the AMEX Gold Bugs (HUI) Index moving up to challenge overhead resistance at 362. The odds of an eventual upside breakout look pretty good. The HUI/SPX ratio (top of chart) also appears to be breaking a down trendline extending back to last May. Mining stocks have two things going for them at the moment. One is the bullish breakout in energy shares. The other is continuing weakness in the U.S. Dollar. News of a big jump in the trade deficit with China pushed the dollar down today against all of the major foreign currencies. That's bullish for precious metals.

Chart 4

FREEPORT MCMORAN BREAKS OUT AS COPPER RALLIES... I recently showed that Freeport McMoran Copper and Gold was an upside leader in the mining group. Chart 5 shows the mining stock breaking out to a new record high. Its relative strength ratio is close to doing the same. FCX is getting a lot of help from copper. The solid line at the bottom of Chart 5 shows copper bottoming in February and rallying to a new six-month high. FCX is getting a boost from both commodities. The vertical line shows that FCX starting gaining (on both an absolute and relative basis) as copper started to rally two months ago.

Chart 5

WYETH LEADS PHARM HOLDERS HIGHER ... While the rest of market continues its listless advance, a lot of money continues to move into defensive sectors like consumer staples and healthcare. And a lot of bullish breakouts are taking place. Chart 6 shows Wyeth breaking out to a new 52-week high today. Its relative strength ratio turned up a month ago. I thought I'd also point out that the Pharm Holders (PPH) achieved a bullish breakout of its own -- helped by the likes of Abbott Labs, Merck, Schering Plough, and Wyeth. Today's PPH close just above 80 puts it close to an even more important breakout. The monthly bars in Chart 8 show that the PPH is testing the top of a five year bottoming pattern around 81. Its relative strength ratio has been rising over the last year after several years of underperformance. We've been seeing that same pattern in several other defensive groups of late. While the market has been pretty dull lately, there's lots of action beneath the surface in various market groups. At such times, it's a good idea to follow the leaders wherever they're located. Right now, they're located in commodities, consumer staples, healthcare, telecom, and utilities.

Chart 6

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Chart 8