Has the "all clear" finally been sounded for commodity stocks, after rising margin requirements and a falling euro knocked the wind out of huge spring rallies in metal, agricultural and energy futures? Or is the current recovery attempt just a false dawn before aggressive sellers retake control of these volatile markets and dump them to even lower ground?

To answer these questions, let's look at four affected stocks and exchange-traded funds rather than the futures markets, because lockstep movement between these equities and their underlying commodities is often overstated, especially when the S&P 500 and Nasdaq averages are fully engaged in uptrends or downtrends.

Tight correlation between commodity and equity prices also occurs within small bursts of time, with independent movement controlling price action over longer stretches. The risk-on/risk-off trade has heightened this market tendency because funds and institutions now jump in to buy baskets of commodities, equities and futures every time the U.S. dollar gets beat up by a weak economic report or overseas strength.

Market Vectors Gold Miners ETF (GDX) -- Daily Source: eSignal

Despite its persistence in recent months, correlation has been a losing strategy in the

Market Vectors Gold Miners ETF

(GDX) - Get Report

. Gold futures are trading just shy of an all-time high right now, after holding up extremely well during the May commodities selloff. This popular basket of gold mining equities topped out in December, however, nearly five months ahead of the underlying commodity.

The GDX fund's chart now shows a well-defined rectangle pattern, with support near $53.50 and resistance near $64. Active traders can play the edges of this broad trading range, but long-term market players should avoid the instrument entirely, until it breaks out and hits a new high, or rolls over and enters a more persistent decline.

I favor the downside in coming months because the accumulation-distribution pattern shows slow deterioration, with On Balance Volume (OBV) breaking the January and March lows in the last downswing and dropping to 2008 levels (red line), even though the fund is still rangebound. This bearish divergence tells us that gold miners could head far lower in the months ahead.

Freeport-McMoRan (FCX) -- Daily Source: eSginal

Copper futures fell to a five month low in May, bouncing about three weeks ago and heading into a key test at resistance between $4.25 and $4.30.


(FCX) - Get Report

is the go-to equity play for copper, bottoming out about one week after its underlying commodity. The stock has now pushed above the 50-day moving average, recovering half of the April-into-May downtrend.

Despite recent progress, it will take a rally into the upper $50s to improve this stock's mixed technical outlook. Until then, it's vulnerable to a lower high in a developing top that needs to hold the two 2011 lows near $46 (lower red line). Like the gold miners ETF, look for volume to tell the tale because OBV has carved a four-month trendline (green line) that market timers can use for buy and sell signals.

OBV dropped to a nine-month low in May (blue line), even though price held above March low. This is bearish, but the current bounce has lifted the stock toward the trendline, with a breakout signaling an end to the correction and the start of a new uptrend. Notably, this buy signal could arrive well in advance of a rally that exceeds the price-based trendline formed by the lower highs (upper red line).

Grain and soybean futures took a major hit in the commodities decline but agricultural stocks have weathered the storm in stride, outperforming their metal and energy brethren. Realistically, these volatile equities had a smaller distance to fall because they've significantly underperformed the broad market in the last two years.

Market Vectors Agribusiness ETF (MOO) -- Daily Source: eSginal

Market Vectors Agribusiness ETF

(MOO) - Get Report

sold off from to $20 from $66 during the bear market and topped out at nearly $58 in February of this year. A March plunge to the 200-day moving average found aggressive buyers, lifting price into a V-shaped recovery that hit renewed selling pressure in April. The instrument shows an unusual surge of May buying interest, despite lower prices.

Key fund component


(MOS) - Get Report

is responsible for the OBV uptick, after the company issued 100 million shares in a secondary offering. Unfortunately, this is less than the sum of its parts because the pattern doesn't point to legitimate sponsorship, ahead of a strong breakout. Rather, it could take months for the company to absorb the dilutive impact of new shareholders. This should keep a lid on MOO through the summer.

Oil Services HOLDRS Trust (OIH) - Daily Source: eSginal

Finally, let's turn our attention to the energy markets and the

Oil Services HOLDRS Trust

(OIH) - Get Report

. As we know, crude oil hit a multiyear high near $115 in May and then pulled back in reaction to massive selling pressure in other commodities and an increase in exchange-margin requirements. The popular fund topped out a full five weeks ahead of the futures contract.

It sold off to a four-month low in May and built a three-week basing pattern near $145. Price rallied out of that pattern last week and is now testing resistance at the 50-day moving average. Volume took a huge hit during the decline, with OBV dropping to a seven-month low (green line). This bearish divergence points to an active decline that will take great effort to overcome.

Now look at the red and blue lines at $166 and $150, respectively. These mark the 62% bear market retracement (red) and resistance generated by a September 2008 breakdown through 17-month topping support (blue). The broad sideways pattern in place since February is bouncing back and forth between these key levels.

This is significant because a rally over $166 would signal the start of a major uptrend that could lift the fund well over $200 in 2012. Alternatively, a breakdown through the May low predicts the next leg of a major downtrend that shows little support until $120. While I favor the downside, I'd avoid the oil patch entirely this summer and wait for the market to make up its fickle mind.

At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.

Alan Farley is a private trader and publisher of Hard Right Edge, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of The Daily Swing Trade, a premium product from TheStreet.com that outlines his charts and analysis. Farley has also been featured in Barron's, SmartMoney, Tech Week, Active Trader, MoneyCentral, Technical Investor, Bridge Trader and Online Investor. He has written two books: The Master Swing Trader and The Master Swing Trader Toolkit: The Market Survival Guide, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

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