At The FRED Report (

www.theFREDreport.com

), we have been looking for a U.S. dollar rally that may in fact be starting. What interests us about this rally is that it is occurring when commodities are overbought and could suffer a sharp decline. Should the dollar rally and commodities decline, it would tend to reinforce the idea that the dollar and commodities are inversely correlated,

and this is not always true

. We show monthly charts of the Gold Futures and the dollar below. As you can see, there are times when they move together and times when they do not.

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Should commodities dip in the next few weeks, we would use that as an opportunity to add to holdings in oil and gold.

We may then see a surprise, when commodities and the dollar will move together for a while. The concept for this is there are seasonal reasons for commodities to rally, and the dollar looks to rally short-term, although it remains in an intermediate downtrend.

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Two attractive ways to participate in such a move could be the DBC (Powershares DB Commodity Tracking ETF) and Australia's equity market (EWA - iShares MSCI Australia Index Fund)

. Australia is heavily exposed to commodities, especially metals, but has had some political issues (a now defunct miner's tax) that have caused it to lag a bit.

Australia also sells to China, another theme of ours, buying stuff that sells to China instead of China itself. The neat possibility about Australia is it is not "in the news" at this time, and may start to garner coverage as performance improves. We show weekly charts below.

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For those who want equities, note two Gold stock instruments -- the GDX and the XAU index. We show weekly charts below -- these are lagging gold on a weekly basis, but might gain on the metals into the end of the year, assuming our yearend stock market rally call works.

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Technically attractive gold stocks include ABX, and NEM.  For clarification, we still are a fan of GLD but want to provide some other ways to play the rise in the actual price of gold besides GLD.  These stocks have lagged the GLD and gold prices. We show weekly charts of these below.

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To conclude,

commodities and metals are technically overbought and could have a sharp decline, which will likely be blamed on a strengthening dollar. Should this occur, we would add to positions as we expect yea-rend strength in commodities.

We expect that commodities can advance even in the face of a short-term dollar rally.

Fred Meissner is founder and publisher of

The Fred Report

. Fred is a CMT and past President of the Market Technicians Association (MTA). He recently left Merrill Lynch's Market Analysis Department and Sector Strategy Department to form The Fred Report.�A detailed bio is here:

Fred Meissner

.