Commodity speculation and the strong dollar have been major stories in 2005: The price of Comex gold is trading above $500 per ounce for the first time in 18 years, and tested the February 1983 high of $514 this morning. Crude oil futures on the Nymex soared to $70.85, an all-time high, on Aug. 28, just as Hurricane Katrina was about to make landfall. And the strong euro turned on a dime just as 2005 began.

I believe the higher gold price is not just a sign of inflationary pressures. Gold is becoming an asset class of choice for petrodollars, and central banks are increasing their gold reserves on global currency concerns. To me, high gold prices warn that financial assets are vulnerable in 2006. The dollar bottomed at the end of 2004 and could top out by the end of 2005 as global investors get nervous about the growing U.S. budget and trade deficits.

How big a warning? Let's start with a look at the CRB to create the context for commodities, then review each segment and some possible trades on the trends there: gold, oil and the dollar.

The CRB Index is currently trading around 323.38, but closed below its 200-day simple moving average of 313.18 on Nov. 29. It ended that week solidly back above its 200-day SMA; this is similar to the last time the CRB was below its 200-day SMA, on Aug. 12, 2004. At that time, it stayed below the 200-day SMA for just one day. That tells us commodities remain strong. To boot, the index is still well above the weekly pivot at 314.96, monthly pivot at 315.47 and the five-week modified moving average at 319.38. I see quarterly resistances at 337.56 and 347.51, so it still has room to move up.

Mo-Mo Gold

Getting back to gold, the Comex gold, currently around $514.20, tested a new 52-week high at $514.80 on Friday; my model shows no nearby resistances. As long as weakness for gold stays above my semiannual and quarterly pivots at $486.50/$482.70, gold should continue to trade higher on strong technical momentum. Gold is even entering a speculation phase, as my model shows the precious-metals industry 31.8% overvalued. Just as telling: My model does not show a single gold-mining stock that meets my criteria for being a buy, chief among which is being 40% undervalued.

If you are trading momentum, consider Harmony Gold ( HMY), but keep in mind that shares are 5.6% overvalued with fair value at $11.52. The weekly chart profile reflects the positive momentum, with an overbought 12x3 weekly slow stochastic and the five-week modified moving average at $11.39. Here's the trade I see in Harmony: As long as weekly closes are above the five-week MMA, I show potential strength to my semiannual risky level at $17.32. I would consider a sell-stop below my monthly pivot at $10.82.

Slick Progress in Oil

Crude oil is trading around $59.32, and tested a new 52-week low at $55.72 last Wednesday, but like the CRB, it ended the week back above its 200-day SMA at $58.06. Crude oil was below its 200-day SMA between Dec. 3, 2004, and Jan. 6 this year, and again from May 12-23; each instance provided a buying opportunity. It looks like last week's dip will prove the same. My model suggested that crude oil would rebound to my quarterly pivot at $59.99; now it may head as high as my new monthly resistance at $62.04. This week's support is $57.53.

One of my themes for crude-oil prices is that the price per barrel became $20 higher than it should have been, due to speculation caused by the FOMC's pushing the fed funds rate down to 1% in June 2003. In congressional testimony in early November, Exxon Mobil ( XOM) Chairman Lee Raymond commented that speculation resulted in crude oil trading $20 above where supply and demand forces would have been. My semiannual support at $48.03 is well above $43.45, where crude ended 2004, and this differential has a longer-term inflationary effect.

My model shows the energy sector 7.3% overvalued, but if you are looking to trade a rebound for crude oil, consider Cimarex Energy ( XEC). Shares are 13.9% undervalued with fair value at $46.68. The weekly chart profile is positive, with the five-week MMA at $39.65. Cimarex ended last week between my monthly pivots at $40.81 and $39.16, and if that zone holds, I show a potential trade up to my quarterly risky level at $43.25.

Watching for a Weaker Dollar

The euro, now around 1.1712, tested a new 52-week low at 1.1643 on Nov. 15. Weekly support is 1.1559 and monthly support is 1.1332, with the five-week MMA at 1.1860. A weekly close above 1.1860 would signal that we've seen a bottom in the euro. The ECB raised its benchmark rate to 2.25% from 2.00% this week, but this was widely anticipated and is not viewed as presaging of a series of rate hikes.

The dollar traded to a new 52-week high against the Japanese yen last Friday at 121.22, above 120.00 for the first time since August 2003. It's now around 120.45. My monthly and semiannual pivots are 118.77 and 117.37, with weekly resistance at 122.04.

If the dollar changes direction in 2006, conglomerates are likely to benefit from its weakening. I set my screen to find a conglomerate that was rated at least a hold by analysts and was at least 10% undervalued, and the screen came back blank. I reset to 5% undervalued, and five names came up. I will be tracking Fortune Brands ( FO), General Electric ( GE), Honeywell ( HON), 3M ( MMM) and PPG Industries ( PPG). When some of these names become at least 10% undervalued, I will follow up on them in a column here.

Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of TheStreet.com Technology Report newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury bond trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback -- click here to send him an email.

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