I'm looking for the doom and gloom but I can't find it. So let's review the past 4 months of $CRX updates that include sectors like Copper, Aluminum, Gold, Silver, Ethanol, Steel, Oil/Energy etc: and see what the stocks look like. Then let's look at the commodities and see why the stocks continue to outperform and in many cases are making new all time highs without the commodity and then ask ourselves why this seems to be the best kept secret? (Although I don't think we have an answer to the secret part.) We don't know why "wall street" doesn't care or know. All we have to do is figure out a way to profit from it!

Sunday, January 28th 2006
Weekend Update - Commodity Plays- $CRX, CENX, AUY, PAAS, STLD, APA, POT, PD, $GOLD, $SILVER, & $COPPER

As you may have noticed, the Trending123 portfolio is heavily overweight the commodity sector. Consequently, I would like to discuss this sector in detail. In this update, I will review the $CRX's performance for the last four months and the implications of a $CRX bottom and how it will affect our commodity related stocks this year. As a whole, the commodity sector has under performed the market indexes since it's peak in May of 2006. However, I believe this lack luster performance is about to change. I always look at an index sector chart, such as the $CRX, in order to analyze a sector's performance and trend. This will indicate how the stocks in the whole sector are also performing. If you look at the components of the $CRX, you will see that 4 of our portfolio stocks are listed in the $CRX. They are ADM, APA,GG, and POT. In addition, our portfolio holds a lot of the CRX's peers. A few of them are: ANDE, AUY, GSS,SU, PEIX & UPL. As a result, I want to review why we got into this sector in the first place. We got into the commodities sector just after the $CRX topped and retested it's lows in late September/early October of 2006. As the new year begins, many of the stocks in the commodities sector are out performing their respective commodity. Now these stocks are on everyone's radar because something strange is going on. Perhaps this bottom in the $CRX is a sign of future hyper inflation or economic growth and pick. The commodity stocks are now outperforming the commodity. In future weekend updates I will analyze each individual commodity sector for you.

Morgan Stanley Commodity Related Equity Index stocks- (CRX)- Daily Chart - October 13th 2006 -Double Bottom
As you may recall, we shorted the Energy and Gold sectors during Summer of 2006. If you look at the first chart from October the 13th, you can see where the $CRX placed it's 52 high at 650.76 . The $CRX then had an ABC correction down to place it's preliminary summer low at 512.05 around June 12th. It then consolidated in a contracting symmetrical triangle fashion upwards to retest the downtrend line before it began another leg down in September. In the second leg down, the $CRX then retraced back down to retest the June low, and placed a secondary low at 516.38 in the beginning of October. This price movement formed a double bottom in the $CRX, as well as a bullish descending triangle continuation pattern. I am not a fan of double bottoms because they are not geometrical shapes. However, I knew that if the $CRX took out the down trend line it would mean a continuation of the prior bullish trend. This is when began to watch the commodity stocks closely. I knew that the top was not yet in for the CRX. If you look at the chart again, you can see that the indicators bottomed with price at the first low, and then began to show bullish divergence after the secondary lows were placed. You can see this divergence clearly in the RSI and PPO. Now let's move on and look at the weekly chart of the $CRX in November.

Morgan Stanley Commodity Related Equity Index stocks ($CRX) - Weekly Chart - November 24th 2006 - Descending Triangle Breakout When you look at the weekly chart of the $CRX you can clearly see that it has been in a bullish upward moving trend since 2003. It is now in a 5th wave move upwards. It has completed a move to the uptrend line that occurred during waves 3 to 4. You can also see the ABC correction down to form a an irregular flat which is when C is higher than A. This price correction caused a bullish descending triangle continuation or a double bottom pattern to form within the larger ascending triangle pattern. In addition, on the breakout of the descending triangle, the moving averages converged and price began to trade above the averages in a bullish fashion. At the same time, the indicators also bottomed and reversed upwards. The price trading above the previous reaction high, the pattern breakout, and the indicators, all marked a reversal of the counter trend move. Thus marking the beginning of a move up to wave 5. Now let us move on and look at the December chart for the $CRX.

Morgan Stanley Commodity Related Equity Index stocks ($CRX) - Weekly Chart - December 15th 2006 - Time for a pullback
On this weekly chart, you can see that the $CRX rallied upwards for 3 months to test resistance near the 52 week highs. At this time it became apparent that the $CRX was toppy. Actually, the entire market was toppy. It was time for the $CRX to pullback and pause for breath before resuming the uptrend. The indicators are still in a bullish trend, but you can see that the stochastics are overbought. The bullish pattern and wave structure remain intact. Now let us move on and look at the January chart for the $CRX.

Morgan Stanley Commodity Related Equity Index stocks ($CRX) - Weekly Chart - January 26th 2007- Time for a pullback
On this weekly chart, you can see that the $CRX did indeed pause for breath as it pulled back to test it's 13 34 EMA's. This pullback created a i to ii wave structure, after which the $CRX resumed it's uptrend. The primary pattern and larger wave structure remain in tact. The indicators and oscillators are confirming this bullish trend with positive divergence. However, at this time everyone is still bashing the commodities despite this bullish action in the $CRX. Now, I just want you to have a look at the commodity stock charts below. One of the things that you may notice is that they all placed their lows at the same time as the $CRX. Look at how bullish they are. Look at the bullish divergence present in the charts. They are all outperforming their respective commodities. All these stock charts look poised for further gains. This is bullish action and implies a continuation of a bullish trend.

CENX - Aluminum Sector - looking very bullish.

AUY - Gold / Precious Metals Sector - People should trade out of this to get into GG and GSS that have more upside potential. I will cover gold in more in depth on another update. At this point $gold is outperforming the stocks by a little bit .

PAAS - Silver Sector / Metals Sector - We don't have any silver stocks and this is only because we have so many commodity stocks. Silver stocks are outperforming the commodity. Notice how PAAS just made a new 52 week high. If you look at the $Silver chart below you will see that PAAS has outperformed the commodity.

STLD - Steel Sector - STLD is also making new all time highs this is bullish.

APA - Oil/Energy Sector - Is a component of the $CRX. It is taking out December highs even though Oil is $15.00 to $20.00 lower

POT - Ethanol Sector - It is consolidating and getting ready to break out.

PD - Copper - Is also in the $CRX. On Friday it made new all time highs despite $copper being low.

$GOLD - Continuous Contract (End Of Day) INDEX - Weekly Chart Gold has been on fire ever since the breakout in this October/November, and it continues to move higher. Gold is back in an uptrend, and you can see that because it has taken out the wave 3 to wave 4 down trend line. In fact, $Gold has just taken out the last month's highs. However, be aware that $Gold could be ready for a small pullback. Nevertheless, the trend is starting to get bullish. There is already a disconnect between the Metal and the stocks. The stocks are already outperforming the commodity, which is a bullish indicator. Furthermore, you can see that the MACD has bottomed and has reversed upwards.

$SILVER - Continuous Contract (End Of Day) INDEX - Weekly Chart
$Silver, like $Gold, has also been trading in a wave 3 to wave 4 pullback, which contains an ABC correction, since May of last year. If you look at the chart, it is very close to breaking it's short term downtrend line. Once it breaks the downtrend line, $Silver will continue up to wave 5. This breakout looks very close to happening as the MACD is reversing to the upside. I believe Silver will outperform Gold in this last leg up.

$COPPER
$Copper has been in a waterfall downwards. Why then are the copper stocks outperforming the copper?


Edited by Daisy

Andrea Victoria Friend aka Daisy
Editorial Assistant for Trending123.com
daisy@trending123.com

Morgan Stanley Commodity Related Index-- The Morgan Stanley Commodity Related Equity Index (CRX) is an equal dollar weighted index based on shares of widely held companies involved in commodity-related industries such as energy (e.g. oil and gas production and oilfield services and equipment), non-ferrous metals, precious metals, agriculture and forest products. The CRX Index was established with a benchmark value of 200.00 on March 15, 1996. To ensure that each component stock continues to represent approximately equal weight in the index, adjustments are made quarterly, based on closing prices on the third Friday in March, June, September & December.