COMMODITY MARKETS HIT NEW RECORDS -- LEADERS ARE GRAINS AND PRECIOUS METALS -- NAT GAS SHOWS ENERGY LEADERSHIP -- COMMODITIES GET A BOOST FROM RECORD HIGH IN EURO AGAINST DOLLAR

CRB HITS NEW RECORD... Commodity markets are on a roll. As evidence of that, the Reuters/Jefferies CRB Index is trading over 370 today for the first time in its history (Chart 1). That puts the commodity index well above its spring 2006 high. And the rally is broad-based with the vast majority of its nineteen commodities in the black. As has been the case recently, grain markets are the strongest performers. Corn, soybeans, and wheat are achieving limit gains with the first two trading at record highs. In precious metals, gold is trading at a new record while silver has reached a new 28-year high. Gold stocks are breaking out. Energy prices are up as well. While crude gets most of the attention, natural gas has become the strongest part of the energy sector. As a result, natural gas stocks are showing up on the energy patch leader board.

Chart 1

NATURAL GAS IS PLAYING CATCH UP ... Naturas gas is the top percentage gainer in the energy pits today. Actually that's been the case since the start of the new year. Chart 2 shows natural gas hitting a new two-month high today. The natgas/crude ratio at the bottom of Chart 2 has started to rise over the last month. Chart 3 gives a longer view of natural gas. The commodity has been trading sideways for the last two years, but is moving up toward the top of its two-year range near $9. A close above that barrier would be a bullish breakout. That may explain why natural gas stocks have started to do better as well.

Chart 2

Chart 3

NATURAL GAS SHOW NEW ENERGY LEADERSHIP ... Chart 4 shows the Natural Gas Index trading near a record high today. The ratio at the bottom of Chart 4 plots XNG against the Energy SPDR (XLE). The XNG/XLE ratio bottomed during September and has been rising since then. That shows that investors in the energy patch are rotating toward natural gas stocks. Relative strength rankings in the energy sector show new leadership in natural gas names like Anardarko, Apache, Chesapeake, El Paso, and XTO Energy. Of those, the strongest chart belongs to XTO.

Chart 4

XTO ENERGY HITS NEW RECORD... Chart 5 shows XTO Energy trading at a new record high today. The ratio below Chart 5 plots XTO against the Energy SPDR (XLE). After lagging behing the XLE for the most of the last year, XTO has surged into a new leadership role since the start of the new year. That makes XTO not only the strongest of the natural gas stocks, but one of the strongest components of the energy complex.

Chart 5

AGS AND PRECIOUS METALS ARE CURRENT COMMODITY LEADERS ... Chart 6 shows where the current commodity leadership is coming from. The three commodity indexes are measured against the CRB Index which is the black zero line. The two top current performers are agriculturals (blue line) and precious metals (green line). Energy (the red line) has been slipping of late as crude has pulled back from the $100 level. [The pullback in crude may also explain recent buying of natural gas]. The upside leadership in agriculturals and precious metals also explains why stocks tied to those two groups are doing so well.

Chart 6

RISING EURO PULLS COMMODITIES HIGHER... It's no secret that part of the continuing commodity surge is feeding off a falling dollar. More recent commodity buying is predicated on the idea that a weakening American economy will force the Fed to lower interest rates more aggressively. That should weaken the dollar even more and will force the Fed to relax its viligance on rising inflation. That's a bullish recipe for commodities. Chart 7 compares the CRB Index (blue line) to the Euro (black line). It seems clear that a rising Euro (falling dollar) is helping pull commodities higher. It's also no coincidence that the Euro is hitting a record high against the dollar on the same day that the CRB Index is breaking out to a new record high as well.

Chart 7