Futures Point To A Weaker Open
INTEREST RATES
One has to give the bond market credit for making
the most out of whatever lingering macro economic concerns are present, as
Treasury prices have managed to hold closer to resistance than to support, even
in the face of patently bearish economic information. Maybe the rash of
terrorism incidents around the world is being seen as the beginning of an even
bigger wave of actions. Certainly almost any of the recent terrorism
developments could effectively challenge the recovery but so far the attacks
have only temporarily damaged sentiment.
STOCK INDICES
While the stock market once again managed to
forge a new high for the move on Tuesday, the market is certainly burning
through significant bullish fodder in the process. Unfortunately the sea of
bullish macro economic developments and better than expected corporate earnings
reports are being overshadowed by the equally surprising rise in geopolitical
uncertainty. With explosions in Damascus and a foiled terrorism threat in
Jordan, the stock market can certainly worry that current geopolitical
developments could at any time derail the bull tilt.
DOW
Critical resistance today comes in at 10,500 and the market will have to avoid a
trade below 10,410 just to avoid a more intense profit taking slide. We are now
in a posture of waiting for a correction down to 10,336 before considering a
long play. In fact, unless the Iraqi situation settles down, our fresh long
entry point could fall down to 10,306, especially if geopolitical angst
continues to populate the headlines.
S&P
We don’t like the back and forth action in the S&P, as that usually isn’t a good
sign for the bull camp. In fact, since the market has wasted so many positive
macro economic developments and hasn’t been able to shift fully into a bull
swing, we suggest that traders lower long entry points to 1120.70. In fact, the
June S&P would violate the 40 day moving average today with a slide below
1127.10 and that could accelerate stop loss selling. We fear a break is ahead,
but a break in this market should still be considered a correction within a bull
market. Short term traders might actually hold shorts for the session today but
be sure to exit before the GDP report on Thursday morning.
FOREIGN EXCHANGE
US DOLLAR
The dollar continues to act anemic with investors
ignoring solid improvements in the US economy and focusing more on heightened
political tensions in the Mideast. US coalition forces launched an extensive air
strike against insurgents in the town of Fallujah while several bombings by
terrorist in Damascus, Syria raised the US terrorist alert level. Both of these
incidents are drawing investors out of the Dollar to seek safe haven in the Euro
and Swiss. Without any economic releases today, focus could be centered around
events overseas. Although the odds are good that the 1st quarter GDP will come
in above market expectations, it may not be enough to convince investors to buy
Dollars on ideas that rates may be on the rise soon unless the situation in Iraq
becomes more neutralized. Therefore, the June Dollar has the potential to dip
back toward 90.00, with near-term support at 90.24.
EURO
The Euro is reaping the benefits of some negative
dollar sentiment arising from geopolitical concerns, as well as from relief that
the ECB does not intend to lower rates any time soon. While the June Euro had
become oversold, we would not expect the currency to sustain a trade back over
120 unless the situation in Iraq becomes more unstable. The Euro-zone economy is
still weak compared to the US and Germany’s 6 leading economic institutes
lowered their growth forecast this year to 1.5%, down from 1.7% previously. This
short covering move in the Euro is a chance to get short the market, but given
the political climate traders may get a change to sell the June Euro closer to
120 resistance.
YEN
Unwinding of cross trades helped to pressure the Yen
against the Euro, Swiss and Pound Tuesday as rates in the European currencies
are thought to be creeping higher while the Japanese leave rates low. Profit
taking in the Japanese stock market and currency adjustments ahead of the Golden
Week holiday were added pressures. However, the June Yen held above critical
support at 91 and with technical indicators at extremely over sold levels, the
market may have run out of sellers. Higher price action overnight suggest more
gains in the US session.
SWISS
The Swiss easily pushed through the 77 resistance
level on safe haven buying and on indications from the SNB that rates have
bottom and could be raised on indications of stronger economic growth. Tuesday’s
action turns the chart more positive for the short-term with the next resistance
area for the June Swiss at 77.67.
^next^
BRITISH POUND
While the market is being underpinned by
expectations for higher rates as early as next week, the new military conflict
in Iraq is also holding back gains. With the UK set to raise rates sooner than
the US, the Pound should continue to have the edge over the Dollar.
CANADIAN DOLLAR
The Canadian has been garnering support from a
weaker Dollar, but the market can’t seem to hold above 74 and a strong US GDP
Thursday could sink the Canadian again. We expect the June Canadian to roll over
back towards 73.
METALS
OVERNIGHT
London A.M. Gold Fix $396.75 -$.40 LME
COPPER STOCKS 153,450 -1,725 tons COMEX Gold stocks 4.045 ml -61,525 oz Comex
Silver stocks 122.1 ml -1.03 ml oz
GOLD
The weaker Dollar action of the last few sessions is
beginning to convince a few more gold longs to enter the fray. With the
escalation of terrorism incidents around the globe, the gold market is certainly
due to get some renewed flight to quality interest. In fact, it is not a far
fetched idea to think that the recent wave of attacks is part of an expanding
wave! The amazing thing about the recent attacks is that they are not being
limited to US interests and quasi US relationships they seem to be aimed at
almost anything.
SILVER
While silver appears to be inching higher on the
charts there doesn’t seem to be a strong incentive for the bull camp. In fact,
overnight the Press has dredged up talk about sagging silver demand due to
increasing digital camera use. Apparently over half of all Japanese households
now own digital cameras and that is a negative an already injured silver market
could have done without.
PLATINUM
The charts still look pretty negative with the
pattern of lower highs remaining in place. With an Asian holiday looming
platinum might not see as much support and that might allow prices to return to
the recent spike lows. Like silver, platinum probably can’t recover consistently
unless the gold market provides significant leadership.
COPPER
The copper market remains somewhat vulnerable in the
short term, as the much better than expected US and Japanese economic numbers
this week have not been fully embraced because of geopolitical issues.
Therefore, the copper market will simply need to see a continued pattern of even
more stellar economic reports just to discourage prices from another sharp
downside probe. The coming Asian holidays probably add another measure of
weakness to the copper market.
CRUDE COMPLEX
With terrorist now targeting Middle East oil
facilities the anxiety level has been cranked up a notch providing further
fodder for the bulls to take the energy complex higher. With coalition forces
launching an air strike against insurgents in Fallujah and reports of a
terrorist band setting off several explosions in Damascus, Syria the fear that
oil supplies from a destabilized Middle East will be disrupted should keep
energy prices firm and market volatility high. Heightened risk of terrorist
attacks combined with tight gasoline supplies, strong world oil demand along
with rising shipping & insurance costs provides an environment for even higher
prices.
NATURAL GAS
Natural gas prices continue to be dragged higher by
sharp gains in the rest of the complex and until anxiety cools over possible
terrorist attacks interrupting the flow of oil we would not try and pick a top
in this market. While gas supplies are comfortably above year ago, there are
lingering concerns about enough supplies this summer. There could be more give
and take in the natural gas market than in the rest of the complex, but a close
back over $6 in June contract puts the market in a much stronger technical
position.