Commodities May Keep Powering Higher

This column was originally published on RealMoney on Feb. 23 at 2:56 p.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

The market has enjoyed another solid week, with most of the indices hitting new highs. Areas that have shown prior weakness, such as the Nasdaq 100 and the small-cap stocks, have stepped up to the plate.

We'll have to see whether the breakouts to new highs can hold. For now, though, there continues to be solid institutional support and healthy rotation into strong sectors.

Most notably, steel stocks remain in a powerful uptrend. I discussed this group in my Feb. 9 column and suggested that it might be time to take some profits in some of these names.

Charts like those of U.S. Steel (X Quote), Nucor (NUE Quote), Allegheny Tech (ATI Quote) and Posco (PKX Quote) are very overextended. That may be a signal to take another round of profits, and let the rest ride with a trailing stop.

As you know, stocks can go much higher or much lower than investors expect. However, taking profits after large moves helps investors lock in gains before the stocks make a significant correction and take back a large percentage of their moves.

With that in mind, let's take a look at the best- and worst-performing industries over the past five days.

Only two of the industries from last week's top 10 performers made repeat appearances on the list: general mining and platinum and precious metals. The action in the coal index was eye-catching, as it gained 3.6% over the past week.

The 10 worst performers included the integrated oil and gas producers and the oil equipment and service industries. Yesterday, those groups seemed to be trying to hold their lows and move higher, so we'll have to pay attention over the next week.

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Sowing the Seeds of Gains

One of this week's largest movers was a relatively new exchange-traded fund. The PowerShares DB Agriculture Fund (DBA Quote) rallied almost 6% over the past five days.

On the chart, you can see the high-volume follow-through that it had on Thursday, moving up 2%. The strong trend in agricultural commodities looks like it will keep powering higher. The demand from worldwide growth isn't likely to change anytime soon, and this ETF may be a way to capitalize on shortages in the market.

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Moving Up

The broader-based iShares GSCI Commodity-Index Tracking Fund (GSG Quote) has been moving up steadily ever since its January low. On Thursday, it broke above resistance on heavy volume, but the price will now have to work its way through overhead resistance at $40-$43.

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The United States Oil Fund (USO Quote) also looks like it's preparing to break above the November-December resistance level. If it accomplishes that, the next level of battle is at $55. Shares will need to stay above $47.50 to keep this uptrend intact.

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Over the past few days, the Broadband HOLDRs (BDH Quote) has quietly slipped above the 200-day moving average. No one is talking about this area of the market, and it could be setting up for a very good move. In order to make that move a possibility, it will need to stay above the $16 level.

I have mentioned the need for semiconductors to participate in a continued bull market. On Thursday, the Semiconductor HOLDRs (SMH Quote) gapped up on heavy volume. Unfortunately, the gap did not clear the $36 resistance level. If the SMH can get above that, we may be seeing an important rotation by institutions. Keep an eye on this area of the market during the next few days, because a sleeping giant may be waking up.

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Here's another interesting chart that shows the flow of assets into the (RYSAX Quote)Rydex Electronics Fund, which has a large percentage of its assets in the semiconductor sector. You can see that the blue asset line is at its lowest level in several years.

RYDEX ELECTRONICS ASSETS

Click here for larger image.

Source: www.sentimenTrader.com

When we see huge volume spikes like the one in the Philadelphia Stock Exchange Semiconductor index on Thursday, that's often an opportune time to take positions in a sector.