AGRICULTURAL STOCKS SURGE WITH GRAIN PRICES -- MARKET VECTORS AGRIBUSINESS ETF HITS 52-WEEK HIGH -- LEADERS INCLUDE INTREPID POTASH, DEERE, MOSAIC, AGRIUM, CF INDUSTRIES, AGCO, AND CORN PRODUCTS -- GOLD CONSOLIDATES WITHIN UPTREND
FALLING DOLLAR ALSO HELPS GRAIN MARKETS ... We've explained several times that the summer peak in the U.S. Dollar was bullish for commodity markets. The June peak in the Dollar helped launch a rally in the CRB Index which has just touched the highest level in two years. Although most of the commodity attention has been focused on metals and oil, grain markets have played a big role as well. Corn prices have hit a two-year high with other grain markets rallying along with it. Although it's true that much of the grain rally is based on smaller crops around the world, the weaker U.S. Dollar plays a role as well. Chart 1 shows that the big upturn in the iPath Grain ETN (JJG) coinciding exactly with the Dollar Index peak during June (green line). During the four months since then, grain markets have been the strongest part of the commodity universe (with precious metals second, industrial metals third, and energy last). Chart 1 shows the JJG moving slightly above its spring 2009 high to reach the highest level in nearly two years. Not surprisingly, the surge in grain markets has given a big boost to stocks tied to agribusiness.
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Chart 1
MARKET VECTORS AGRIBUSINESS ETF SURGES TO TWO-YEAR HIGH... Arthur Hill showed some stocks in the agriculture business on Friday that were benefiting from surging grain prices. I'm going to expand on that theme today. Let's start by viewing the ETF that covers that market group. Chart 2 shows the Market Vectors Agribusiness ETF (MOO) exceeding its January high to reach the highest level in two years (just like the corn market). Its relative strength line (below chart) turned up in June just as commodities started to rise (and the dollar fell). They've been outperforming the S&P 500 since then. The MOO provides exposure to companies worldwide that derive at least 50% of their revenues from the agriculture business. Its five sub-sectors include agriculatural chemicals (39%), operations (32%), equipment (15%), livestock operations (10%), and ethanol/biodiesel (3%). Arthur showed three stocks in the group on Friday which included Intrepid Potash (IPI). Chart 2 shows that stocks rising to a six-month high on rising volume. Let's look for some more individual leaders in the group.
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Chart 2
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Chart 3
US AGRICULATURAL LEADERS... The next six charts were chosen in order of their weighting in the MOO (starting with the biggest) and for their strong chart patterns. The first on the list is Deere (Chart 4) which has been rising for sometime (both in absolute and relative terms). The remaining five agribusiness stocks have just hit new 52-week highs or are close to doing so. Mosaic is testing its January high in Chart 5. The remaining four have already cleared that barrier. They include Agrium (Chart 6), CF Industries (Chart 7), AGCO (Chart 8), and Corn Products (Chart 9).
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Chart 4
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Chart 5
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Chart 6
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Chart 7
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Chart 8
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Chart 9
GOLD CONSOLIDATES... Last Thursday's message wrote about the short-term oversold condition in the dollar and how it was contributing to some profit-taking in gold. The daily bars in Chart 10 show the heavy trading that took place on that day. That normally suggests at least a "short-term" top in a market. Although the 14-day RSI line (top of chart) remains in overbought territory, daily MACD lines (below chart) remain positive. In addition, GLD remains above its 20-day moving average which is its first line of support in any downside correction. The hourly bars in Chart 11 show the past week's action in more detail. The heavy selling last Thursday is more visible, as are the highs and low formed that day. The GLD is marking time within that range. It would have to break last week's low near 129 to signal a deeper correction. I also showed the Market Vectors Gold Miners ETF (GDX) backing off from its early 2008 peak near 57. The hourly bars in Chart 12 show the GDX consolidating around that level (solid line). It would have to close below 55 to signal a deeper correction. I'm still inclined to view any consolidation or pullback in precious metals as just a pause in a long-term uptrend.
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Chart 10
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Chart 11
