Commodity ETFs kicking into high gear

Brushing off the previous day's weakness, the major indices cruised to another round of fresh 2009 closing highs yesterday, though the rally lacked the punch of higher volume. After opening near the flat line, stocks trended higher in the morning session, then drifted in a sideways range throughout the afternoon. The Dow Jones Industrial Average advanced 1.0%, as the S&P 500 and Nasdaq Composite scored matching gains of 0.9%. The small-cap Russell 2000 kept pace with the broad market by closing 1.0% higher, but remained just below last week's high. The S&P Midcap 400 climbed 1.1% and marginally finished at a new high of the year. With respectable closing price action, the main stock market indexes finished around the upper 20% of their intraday ranges.

Total volume in the NYSE was 22% lighter than the previous day's level, while volume in the Nasdaq receded 12%. In both exchanges, volume fell back below 50-day average levels, indicating a lack of accumulation amongst mutual funds, hedge funds, and other institutions. Considering the solid percentage gains of the broad market, market internals were not that impressive. In both the NYSE and Nasdaq, advancing volume exceeded declining volume by a margin of just over 2 to 1. This tells us the gains were not far reaching into most industry sectors.

One of the strongest ETF performances in yesterday's session was had by PowerShares Base Metals (DBB), which jumped 3.9%. More importantly, DBB finally broke out above its lengthy (11-week) band of consolidation, enabling it to close at a new 52-week high. We've been long DBB since mid-September, when it gapped down to "undercut" its 20-day exponential moving average. In the weeks that followed, DBB merely chopped around in a range, but yesterday's breakout could finally spark some decent upside momentum in the near-term. Now that DBB has broken out, we've trailed our stop higher, to just below yesterday's low. In the event of a failed breakout, this will enable us to still lock in a small gain on the trade. The daily chart below illustrates the breakout:

In addition to DBB, commodity ETFs have been heating up across the board, creating additional buying opportunities. PowerShares Agriculture Fund (DBA), comprised of a basket of food commodities including sugar, corn, and soybeans, recently broke out above resistance of its long-term downtrend line, and is now positioned to move above a significant band of horizontal price resistance. This is shown on the weekly chart of DBA below:

With an approximate 40% weighting in crude oil futures, and a roughly 15% weighting in spot gold futures, the DB Commodity Index Tracking Fund (DBC) has been trending steadily higher since breaking out above its four-month downtrend line. We're already long the U.S. Oil Fund (USO), which understandably has a similar chart to DBC. But if not already positioned in the commodities arena, either DBC or USO look good for buy entry on a pullback to support. In this case, the 10-day moving average could provide a low-risk entry point. On the chart of DBC below, the 10-day MA is the dashed, purple line.

Precious metals ETFs may be headed back up, after recently correcting down to short-term support of their 10-day moving averages. With gold trading at a new high, well above the $1,000 mark, there's virtually no resistance to hold it down. Per Intraday Trade Alert to regular subscribers, we bought a half position in iShares Silver Trust (SLV) as it rallied yesterday afternoon. We plan to add the remaining shares on confirmation of a breakout to a new high.