In response to the negative sentiment, U.S. stocks fell today, and the Dow Jones Industrial Average sank to levels not seen in six years. The Associated Press explains that fear sent investors running to the relative safety of U.S. government bonds and gold, which rose briefly above $1,000 an ounce.

A selloff resulted from the uncertain financial sector, with shares of Bank of America (BAC) down 14% to $3.37 and Citigroup (C) down 20% to 2.01.

• Financial Select Sector SPDR (XLF): XLF has lost 17.9% in the last week; Bank of America is 6.8%; Citi is 3.5%

Higher energy costs are driving the consumer prices up for the month of January, however the prospect of rising interest rates does not appear to be in the offing, thanks to the depth of the recession. Martin Crutsinger for the Associated Press reports that inflation has been flat this year, with the lowest reading in more than 50 years.

The Labor Department said Friday that consumer prices rose by 0.3% last month, the biggest monthly increase since a 0.7% rise in July. Over the past 12 months, core inflation, excluding energy and food, rose 1.7%.

• PowerShares DB Energy (DBE): down 16.4% in the last month

General Motor’s (GM) Swedish subsidiary Saab went into court protection from creditors as of Friday, as the unit is to be spun off or sold from the ailing U.S. car maker’s parent group. Karl Ritter for the Associated Press explains that the move is a last-ditch effort to get Saab in order for sale, but the danger of a collapse still hovers over the ailing brand because neither GM, or the Swedish government, appears ready to provide enough money to keep it going as a freestanding entity.

GM, which is seeking help from the U.S. government to avoid bankruptcy at home, hopes the three-month reorganization process will put the Swedish brand into shape for a sale. GM plans to be completely out of Saab by the end of 2009.

We wrote a report back then, which thoroughly covered the commodities area, from the broad-based funds to the single commodities. From that report, many commodities went on to hit record highs.

How things have changed. Oil, gold, gas and more all have corrected sharply. It’s a matter of great debate now what’s going to happen next. One thing that’s for certain is that the tanking of most commodities illustrates the importance of having an exit strategy. Our own is to exit when a fund is 8% off the recent high or below its 200-day moving average – and most commodities are off their highs by double digits.

Right now, there’s a looming threat of inflation. The government is printing new money by the truckload, which could lead to an inflationary situation down the road. Commodities are often high first, which is why they’re still worth keeping an eye on despite the correction.

Some, like Jim Rogers, say not to count out commodities, now or ever. That’s because the credit crisis is creating an inability for farmers to get loans, which means they can’t grow. This will lead to supply shortages, after which high prices ultimately will follow. Food demand is expected to increase, as populations in emerging markets boom and many of those areas adopt a more western diet. Staple commodities, such as corn, soybeans, wheat and sugar could very well continue to see historic levels of demand. And the assets flowing into such ETFs don’t seem to have slowed much, either.

This fascinating chart from U.S. Global Investors shows how commodities over time might have price swings, but eventually revert to their long-term averages, also known as “mean reversion.” Not one category in this chart has shown any consistency in the nine-year period it tracks. By allocating your assets and remaining diversified, investors can gain some volatility protection.

Oil has been holding steady for a few weeks, around the $40 a barrel mark. There’s a big fight going on now: declining consumer demand that remains far below production, and OPEC can’t seem to cut production enough at this point.

Gas prices are moving up, however. In the last month, the cost of a gallon of gas in Orange County has risen 27 cents. The disconnect between the two can be blamed on refineries, which are operating at their lowest capacity since 1992.

The outlook for gold is mixed. While there’s agreement that prices will probably stay put for now, the question is how high will they go? Some call for $1,500 an ounce, others are expecting as high as $2,000 an ounce.

No one can say for certain where commodities are headed, which is why we so firmly adhere to the trend-following strategy instead of relying on predictions that are often at odds with one another. Many hours have been spent by experts, trying to call which way commodities will go and when. For now, we’re going to wait for the trend to appear. At the moment, it’s simply not there.

• PowerShares DB Agriculture (DBA) is an ETF that contracts on some of the most liquid and widely traded agricultural commodities — corn, wheat, soybeans and sugar. DBA hit a high on Feb. 26, 2008, and has fallen 41.3% since then.

• Market Vectors Global Agribusiness (MOO) tracks the stock-based DAXglobal Agribusiness Index and provides exposure to 40 worldwide companies in five segments: agricultural chemicals, agriproduct operations, agricultural equipment, livestock operations and ethanol/biodiesel production. The top five components, by market weight, include: Mosaic Co. (MOS), Potash Corp. (POT), Monsanto Corp. (MON), Deere & Co. (DE) and Archer-Daniels-Midland (ADM). MOO’s high was on June 17, 2008; it has since declined 54.3%.

MOO made a distribution on Dec. 26 that is not reflected in the chart above.

• ELEMENTS Rogers International Commodity Agriculture ETN (RJA) seeks to replicate an index that represents the value of 20 agricultural commodity futures contracts. RJA’s high was hit on Feb. 26, 2008, and the ETN has declined 44.2% since then.

• For a more diversified energy play, the PowerShares DB Energy Fund (DBE) replicates an index tracking the prices of two different grades of crude oil, heating oil, gasoline and natural gas. The high was reached on July 3, 2008; since then, DBE has lost 64.9%.

• United States Gasoline (UGA) tries to match the percentage increase in the unleaded gasoline futures that trade on the New York Mercantile Exchange. In concept, this fund increases in value by the same amount that gas rises in price at the pump. UGA reached a high on July 2, 2008, but has fallen 64.9% since then.

• iShares Dow Jones U.S. Energy Sector Index Fund (IYE) is as pure a play on energy as you can get with 10 top holdings including: Chevron (CVX), ConocoPhillips (COP), Exxon Mobil (XOM) and Transocean (RIG). IYE has fallen 43.3% since its May 20, 2008, high.

IYE made a distribution on Dec. 23 that isn’t reflected in the chart above.

• iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) is an unleveraged path to investment in Nymex West Texas intermediate crude oil futures. It takes a fixed-weight approach to determining asset allocation of its portfolio. OIL has lost 78.5% since its July 11, 2008, high.

• The SPDR Gold Shares Fund (GLD) and iShares COMEX Gold Trust (IAU) hold gold bullion. GLD and IAU have both lost 10.9% and 11.1% respectively since their highs on March 17, 2008.

• The PowerShares DB Gold Fund (DGL) is based on the Deutsche Bank Liquid Commodity Index and is composed of futures contracts on gold and is intended to reflect the performance of the yellow metal. DGL has lost 12.6% since its March 17, 2008, high.

• Market Vectors Steel (SLX), which launched in October 2006, holds companies involved in the production of steel. Among the top holdings are Rio Tinto (RTP), Arcelor Mittal (MT.AS) and Companhia Vale ADS (RIO). SLX reached a high on May 16, 2008, but has since dropped 69.9%. On the other hand, there are high hopes for steel if President Barack Obama’s stimulus plan goes through. In the last month, it’s advanced 5.4% and moved above its short-term trend line.

SLX made a dividend on Dec. 26 that is not reflected in this chart.

• The iShares Silver Trust (SLV) holds silver bullion. Silver has a wide range of industrial applications, making it particularly attractive when there’s a boom in construction activity, but sensitive to dowturns. SLV has lost 38.3% since its March 5, 2008, high.

• PowerShares DB Base Metals (DBB) is based on an index composed of futures contracts on some of the most liquid and widely used base metals — aluminum, zinc and copper (grade A). DBB has lost 56.8% since its May 4 , 2007, high.

• iShares S&P GSCI Commodity Indexed Trust (GSG) tracks a broad index of 24 commodities weighted according to the proportion of the commodity flowing through the economy. Almost half of the index reflects crude oil, and the balance is split between other energy products such as natural gas as well as agricultural commodities, industrial and precious metals, and livestock. It hit a high on July 2, 2008, and has fallen 66.4% since then.

• An even more diversified commodity play is the iPath Dow Jones-AIG Commodity Index Fund ETN (DJP), which tracks an index that comprises 30% energy, 30% agricultural, 20% industrial metals, 10% livestock and 10% precious metals. DJP’s high was reached on July 2, 2008, but has lost 53.4% since then.

• PowerShares DB Commodity Index Tracking Fund (DBC) tracks the futures for a simplified index of just six commodities: corn, crude oil, gold, heating oil, aluminum and wheat. It hit a high on July 2, 2008, and has fallen 56.5%.

DJP made a distribution on Dec. 15 that is not reflected in this chart.

For full disclosure, some of Tom Lydon’s clients own shares of SLX, SLV and GLD and is a board member of U.S. Global Investors.

Economists had called for a 2.7% growth rate, but instead got 3.3%, reports Jeannine Aversa for the Associated Press. It was a nice reversal after two downbeat quarters: the economy shrank in the last quarter of 2007, while it grew a weak 0.9% in the first.

The growth isn’t seen as a permanent sign that the fragile economy has roared back, though. Federal Reserve Chairman Ben Bernanke warned recently that the economy would be weak through the rest of this year.

Fewer people signed up for jobless benefits last week, as well, making for the third consecutive drop after six-year highs were hit earlier this month. Unemployment applications dropped to 425,000, which was 2,000 less than analysts were expecting, reports Christopher S. Rugaber for the Associated Press.

This good news comes on the heels of reports from earlier this week that consumer confidence grew the most in two years.

After the reports were issued, oil retreated some, making plays on energy weak performers. Oil had been rising as Tropical Storm Gustav gained strength and threatened the U.S. energy infrastructure on the Gulf Coast, reports Pablo Gorondi for the Associated Press. Midday, it broke through the $120 barrier.

• U.S. 12 Month Oil Fund (USL), up 30.8% year-to-date
• United States Oil (USO), up 26.3% year-to-date
• United States Gasoline (UGA), up 12.7% since Feb. 28 inception
• PowerShares DB Energy Fund (DBE), up 29.6% year-to-date

This month, Valero Energy got the bad news that Mexico would be cutting off supplies to one of the company’s Gulf Coast refineries by 15%. Mexico’s oil enterprise is one of the conglomerate’s main sources of crude, reports Steven Mufson for The Washington Post. Mexican sales of crude to the United States is at its lowest level in more than 12 years.

India’s Tata Motors was making its own announcements, with plans to produce a people’s car called the Nano for $2,500 this fall. The idea is to make cars so affordable for people in India and elsewhere, they may sell 1 million per year.

Together, this news is a force pushing the supply and demand of oil to new levels, and taking the price up with it. This oil news is unique, however, because many think that drivers will never see gas prices as low as they once were, causing the Sunday drive of yesteryear to stay there.

Oil and gas have spiked higher in price before. But this latest run-up, experts say, is different. That’s because it’s been accelerating over a period of several years, and ample supplies of crude have proven elusive in that time.

The average price of a barrel of crude oil has doubled from 2001 to 2005, and then doubled again by March of 2008, and then went up 40% again. Cheap oil has become one of the major building blocks of the American economy and society as we know it. Consider the interstate highways, big cars, big planes and commuters living in suburbs-it’s a way of life we may have to begin to reconsider before long, if we haven’t already.

ETFs that could remain affected:

• PowerShares DB Energy Fund (DBE), up 35.3% year-to-date
• United States Oil Fund (USO), up 31.2% year-to-date
• PowerShares DB Oil Fund (DBO), up 34.9% year-to-date
• iPath S&P GSCI Crude Oil Total Return Index Index (OIL), up 30.8% year-to-date

An estimated 90 billion barrels of oil and one-third of the world’s undiscovered natural gas are beneath the Arctic Circle, which government scientists discovered in the largest-ever survey of the area’s energy resources. The region includes parts of the United States, Russia and Canada, reports the Associated Press.

Today’s current consumption is about 86 million barrels a day, meaning the untapped oil could last for three years.

Oil prices have been heading south lately, but they’ve been struggling today to post a rally while gasoline prices continued to head lower. Gas is down to $4.026 a gallon, while oil rose to $124.56, reports Adam Schreck for the Associated Press. Natural gas futures are at $9.788 per 10,000 million British thermal unites.

Americans have been cutting their consumption in recent weeks, using 2.4% less fuel in the last four weeks than they did last year.

It’s been a volatile and interesting year so far for fuel, and it’s sure going to be interesting to see what happens in the second half of 2008. ETFs to watch:

• United States Oil (USO): down 9.7% in the last month; up 32.2% year-to-date
• United States Natural Gas (UNG): down 27.5% in the last month; up 25.7% year-to-date
• First Trust ISE-Revere Natural Gas (FCG): down 22.6% in the last month; up 12% year-to-date
• iPath DJ AIG Natural Gas Trust Sub-Index (GAZ): down 27.2% in the last month; up 25.6% year-to-date
• PowerShares DB Energy (DBE): down 9% in the last month; up 36.6% year-to-date