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The views expressed in this report are those of Lesley Beath and may differ from Morningstar's views.

Reviewed this week

A selection from the Resource sector - high vs low risk.

• Overview
  Looking for the rebound. More...
• Mincor Resources (MCR)
  Preparing for a rebound? More...
• Independence Group (IGO)
  Improving. More...
• Western Areas (WSA)
  Risk is abating. More...
• Iluka Resources (ILU)
  A pullback. More...
• Lynas Corporation (LYC)
  Upside limited in the short term. More...
• Oil Search (OSH)
  A decision point. More...

Please note: before making an investment decision, Morningstar recommends you read the fundamental research available on these stocks.

Disclaimer: To the extent that any content in this report constitutes advice, it is general advice that has been prepared by Lesley Beath without taking into account the particular investment objectives, financial situation and particular needs of any individual investors. If necessary, you should consult with a licensed investment adviser or dealer in securities such as a stockbroker before making an investment decision. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

Overview

Let's start this week with the oil price.

Last week's fall on the back of the release of 60 million barrels of oil from the Strategic Petroleum Reserve, in an attempt to ease prices, was not as sharp as the previous week's decline of 6.3%.

But it was the Brent price that suffered the most, falling by 6.7%. This took the price of Brent to test the lows of March and May, and puts it on a significant support level; this support is similar to the support on the CRB index. The latter has been discussed in recent reports and the chart was presented last week. The index has not yet convincingly broken to the downside, but at this stage the odds favour such an outcome. In that event the CRB has downside potential of 8-12%. And crude oil could push toward the $80 level.

But it is not just the oil price that appears vulnerable - the precious metals complex and the "food" commodities are also at near-term risk. This suggests that it could be a US-dollar-driven event; the dollar has short-term upside potential and this could be a reflection of an increase in risk aversion, which would obviously have a negative impact on equity markets. This has been spoken about before, and there is not much happening to change that view.

But it must be remembered that despite the potential for this to be a short-term threat, it should be a longer-term positive for global equities.

The base metal complex presents a different profile. Copper, aluminium, lead and zinc are holding up relatively well, and show no signs of top formation at this stage. Tin and nickel have been particularly weak over the past few months, with the latter declining by 26% since February.

The nickel price is now displaying a loss of downward momentum, and although there are no confirmed Buy signals in place, risk is now to the upside. There are also signs of improvement in some of the Australian nickel producers - we take a look at those later in the report, wondering if the worst is behind. The Research team has a positive outlook for these stocks and although there is still market risk evident, stocks such as Mincor (MCR) and Independence Group (IGO) could be on the verge of a considerable rebound.

So what's happening with the USD?

It posted a medium-term low against the Australian and Canadian dollars, Sterling and the Euro in early May. This was in conjunction with an improvement against the smaller Asian currencies. It has been relatively flat against the Yen, but remains weak against the Swiss franc. It appears as though further gains are likely. It's hard to tell whether this is just a reflection of a move out of risk assets or whether the USD is carving out a medium-term reversal.