Stocks wrapped up the week on a positive note last Friday, as the major indices recovered some of the previous day's steep losses. After moving higher on the open, the main stock market indexes drifted sideways, in a tight range, throughout the rest of the day. The Nasdaq Composite reclaimed more than half of last Thursday's loss by gaining 1.3%. The advances in the S&P 500 and Dow Jones Industrial Average were less impressive; the benchmark indexes climbed 0.4% and 0.2% respectively. The small-cap Russell 2000 rallied 1.1% and the S&P Midcap 400 ticked 0.4% higher. Bullish divergence caused the Nasdaq to close near its best level of the day, but the rest of the major indices settled near the middle of their intraday ranges.

Turnover backed off substantially, indicating traders were hesitant to hold a bunch of long positions over the weekend. In both the NYSE and Nasdaq, total volume declined 20% below the previous day's levels. Trading in both exchanges also fell to below average levels. Advancing volume in the Nasdaq exceeded declining volume by a respectable margin of 2 to 1. The adv/dec volume ratio in the NYSE was flat.

Last week, we discussed the major change of sentiment that has caused the various commodity-based ETFs to get pummeled in recent weeks. The U.S. Natural Gas Fund (UNG), for example, has plunged a whopping 33% so far this month! It also sliced through its 200-day moving average last week, without even bouncing on the initial test of support. Frankly, it is pretty unusual for any ETF to so easily violate such a major support level on the first test. The loss in crude oil, and the U.S. Oil Fund (USO), has been less dramatic. Still, USO has been trending sharply and steadily lower since mid-July. The strength of the downtrend is evidenced by the fact that USO has remained below its 20-period exponential moving average on the hourly chart since the current sell-off began on July 15. On a relative basis, gold (GLD) and silver (SLV) have held up much better than oil and gas, but both failed their recent breakout attempts, forcing us to revoke our bullish bias toward the precious metals.

One logical reason for the sharp decline in the prices of these ETFs is simply a correction to the extraordinary gains that many commodities racked up in such a short period of time. The faster stocks and ETFs go up, the faster they tend to come down. . .whenever they eventually correct. But another factor that has been heavily influencing the prices of the commodities is the recent strength in the U.S. dollar. Generally speaking, commodities have had an inverse relationship to the price of the U.S. dollar. To illustrate the strengthening dollar, take a look at the daily chart of the CurrencyShares Euro Trust (FXE), which follows the price of the euro, in relation to the U.S. dollar: