MOST COMMODITIES ARE IN CORRECTIONS -- GOLD MAY ALSO BE VULNERABLE AS DOLLAR ETF BOUNCES OFF MARCH LOW -- A POTENTIAL BOTTOM IN US BOND YIELDS MAY HELP STABILIZE THE DOLLAR -- THAT COULD PUT THE COMMODITY UPTREND IN JEOPARDY

ENERGY IS THE LAST COMMODITY GROUP TO ROLL OVER ... I've gotten a lot of questions regarding my article last week about commodities having entered into a downside correction. One reader asked if there were any commodity ETFs in existence. There are several of them. Chart 1 shows the DB Commodities Tracking Index (DBC) which represents a basket of commodities (including crude oil, heating oil, gold, aluminum, corn, and wheat). Chart 1 shows it having broken its 50-day moving average. Another reader asked if the downturn included agricultural markets. Chart 2 shows the DB Agriculatural ETF (DBA) already threatening its 200-day average after failing a retest of its March high. Better weather conditions in the midwest have caused profit-taking in grain markets [DBA includes corn, wheat, soybeans, and sugar]. Chart 3 shows the DB Industrial Metals ETF (DBB) trading below its 200-day average. In fact, the only commodity group that hadn't been in a correction was energy. The DB Energy ETF (DBE) in Chart 4 shows that energy has been the last commodity group to roll over. More detailed information on these ETFs can be found at Powershares.com.

Chart 1

Chart 2

Chart 3

Chart 4

MARKET VECTORS GOLD BREAKOUT HAS BEEN NEGATED ... Since precious metals are commodities, it stands to reason that they will be hurt by a downturn in commodities. Early last week I showed the Market Vectors Gold Miners ETF (GDX) closing above chart resistance at 50. The subsequent pullback below 48 appears to have negated the bullish breakout. [An upside breakout is negated if prices close decisively below the breakout point]. Chart 6 shows the streetTracks Gold ETF (GLD) heading down for a retest of its May peak at 92. Chart 7 shows Silver iShares (SLV) already trading beow its breakout point at 180. Although not shown here, platinum has fallen sharply. One of our readers asked if recent gold action warranted "some" profit-taking. I would think so, especially if GLD closes much below 92. A stronger negative signal would be given by a GLD close below 90.

Chart 5

Chart 6

Chart 7

DOLLAR ETF IS BOUNCING... Part of the rationale for the commodity rally has been weakness in the U.S. Dollar. PowerShares also offers a US Dollar Bullish ETF (UUP) which is shown in Chart 8. The UUP is designed to trade in the same direction as the U.S. Dollar Index (which measures the dollar against a basket of six foreign currencies). Chart 8 shows the UUP starting to bounce off chart support formed during March and April. That's not conclusive evidence of a bottom. But it could be the start of one. Any hint of dollar stability may be enough to take some steam out of the commodity uptrend. One of the factors stabilizing the U.S. Dollar Index is recent firming in U.S. bond yields.

Chart 8

BOUNCING BOND YIELDS SUPPORT DOLLAR ... The direction of U.S. rates has an important influence on the direction of the U.S. Dollar. Chart 9 compares the 10-Year T-Note Yield (red line) and the US Dollar Index (green line) over the past year. Both fell together since last summer. Bond yields bottomed during March, however, and helped stabilize the dollar. Chart 10 gives a longer-term perspective. It shows bond yields (monthly bars) peaking in 2000 and declining until 2003 (which coincided with a bear market in stocks). Bond yields are now bouncing off chart support formed during 2003 in what could be the early stages of a major bottom. Falling bond yields helped pull the dollar lower from the start of 2002 to this spring. A bottom in bond yields might be enough to put a floor under the U.S. currency. Chart 11 shows that the major upturn in the CRB Index started with the dollar peak in 2002. Any hint of a dollar bottom could put the commodity uptrend in jeopardy.

Chart 9

Chart 10

Chart 11

CORRECT EMAS ... As some of our sharp-eyed readers correctly pointed out, my last chart attempting to show the 13-34 day EMA lines for the S&P 500 included a simple moving average by mistake. Here are the correct EMAs. The blue line is the 13-day exponential moving average and the red line is the slower 34-day EMA. Short-term buy and sell signals are given when the two lines cross. The short-term sell signal given in early June is still intact. The black line below Chart 12 plots the difference between the two EMAs. The fact that the line is rising simply shows that the spread between the two EMAs is narrowing. That normally happens during an oversold market bounce. To turn the short-term trend positive, the blue line has to cross above the red line and the black line has to rise above zero. Today's rally did push the S&P back over its 13-day EMA for the first time in more than a month.

Chart 12