GRAIN MARKETS LEAD AGRICULATURAL GROUP HIGHER -- GOLD HOLDS UP AS WELL -- OIL SERVICE HOLDERS LEAD ENERGY SECTOR HIGHER -- PULLBACK IN YEN HELPS MARKET -- BUT WHERE'S THE VOLUME
AGRICULATURALS ARE STRONGEST OF COMMODITIES... Commodity markets have come under pressure along with stocks over the past month -- but not by equal amounts. The CRB Index lost -7% during the liquidity crisis. The hardest hit group was the economically-sensitive industrial metals which fell -15%. The energy group lost -8% and precious metals -5%. The only group to gain ground was agriculturals, which is comprised mainly of grain and soybeans. Chart 1 is taken from John's Latest Performance Chart which was posted on Wednesday. It shows how those four commodity groups have done since the start of 2007 relative to the CRB Index which is plotted as the zero line. The chart shows that industrial metals have done the worst (pink line) and are the only group to underperform the CRB. The strongest group has been energy. The green line, however, shows energy prices rolling over to the downside over the last month (especially gasoline and natural gas). Once again, the strongest group has been the agriculaturals (blue line) which has outperformed the CRB by more than 10%. Precious metals gained 5% more than the CRB, but lag behind agricultural markets.
Chart 1
THERE IS AN AGRICULATURAL ETF ... Chart 2 plots the PowerShares DB Agricultural Fund ETF (DBA). I can't vouch for its liquidity since it's been existence for less than a year. However, it's the strongest commmodity-related ETF at the moment, and the only one I know of that's trading above its 50-day moving average. The relative strength ratio beneath the chart shows the DBA/CRB ratio trading at a new six-month. Those of you who might want be looking for some agricultural exposure might want to examine the DBA more closely.
Chart 2
WHICH COMMODITY INDEX TO BELIEVE... One of the reason it's hard to get a definite read on the trend of commodity markets is because there are different versions of that trend. Chart 3 plots the more popular Reuters/Jefferies CRB Index (CRB), which has fallen to a six-month low over the past month. It actually did a bit worse than the stock over the last month as measured by its relative strength ratio. Chart 4, however, shows the Continuous Commodity Index (CCI) which has much heavier weight in agriculatural markets. The CCI has held up better than the stock amrket over the last three months and is trading over its 200-day moving average. Historically, commodity prices peak "after" the stock market. Rising volatility, however, increases the correlation between the two asset classes. That being the case, it seems fair to conclude that the fate of most commodities (possibly outside of agriculaturals and gold) may lie with the direction that the stock market ultimately takes.
Chart 3
Chart 4
GOLD IS STILL HOLDING FIRM... Although precious metal stocks and silver have taken a drubbing lately, bullion has held up relatively well. Chart 5 shows the streetTracks Gold Trust (GLD) bouncing off its 200-day average recently and trading over its 50-day line today. Its relative strength ratio (versus the S&P 500) beneath the chart shows that gold has been a relatively safe place to be since the start of July. The fate of gold depends on a lot of things. One is the direction of the stock market. Another is the fate of the dollar. The dollar has been supported recently by the temporary flight out of most foreign currencies (except the yen). The dollar has started to slip over the last week as foreign currencies have bounced (and the yen has pulled back). It all seems very complicated. That's why we have charts. I'm still holding to my positive long-term view of gold as long as it stays over its 200-day line and its June low. If it breaks those, I'd have to take another look.
Chart 5
OIL SERVICE STOCKS LEAD ENERGY GROUP... Energy stocks are starting to show some upside leadership again. Chart 6 shows the Energy SPDR bouncing off two important support levels recently. One is the 200-day moving average (red arrow). The other is the December peak near 62.5 (flat line). The relative strength ratio below the chart is still in an uptrend. The real test of the XLE rally will be whether it can climb back over its 50-day average. While the XLE has been weighed down by weak natural gas stocks, Oil Service Holders have held up even better. Chart 7 shows the OIH nearing a test of its 50-day average and its early August intra-day peak at 176.52. Its relative strength line (measured against the XLE) shows it leading the energy group higher. Volume, however, has been on the light side. Although energy stocks are doing better, their ultimate fate may also depend on which direction the stock market takes from here.
Chart 6
Chart 7
EURO RALLIES AS YEN PULLS BACK... One of the factors supporting commodities is the jump in most foreign currencies and a corresponding drop in the dollar. Chart 8 shows the Euro climbing back over its 50-day moving average. Chart 8, however, shows the Japanese yen gapping lower this week. The falling yen has relieved pressure on the "carry trade" and is helping support this week's stock market rally. How far that stock market rally carries, however, is still open to debate.
Chart 8
Chart 9
WHERE'S THE VOLUME? ... While stock prices continue to recover, the lack of confirmation from trading levels is disturbing. Chart 10 shows the S&P 500 SPDR (SPY) trading back over its 200-day average (but well below its 50-day line). Trading volume, however, has been amazingly light all week. That's not the stuff that strong uptrends are made of. We'll take another look at this week's rally attempt after the close.
Chart 10
