Futures Point To A Technical Bounce
INTEREST RATES
The Treasury market would like to go lower from a
fundamental perspective, but the technicals are making it difficult for fresh
shorts to rationalize getting short at current levels. While the market expects
a steady flow of bearish third tier economic numbers, the liquidation in the
equity market is tempering economic optimism. With slightly weaker oil prices
and the prospect for some further softening in that critical cost component it
is possible that investors and consumers feel a little better about the recovery
and that could serve to give the bears a little assistance in the Treasury
markets.
STOCK INDICES
While the market might be able to forge a weak
bounce, a recovery would be mostly technical in nature, as the bullish
fundamental track of news simply isn’t being embraced. One almost has to wonder
what the market can expect in the way of supportive news, as this market has
already burned through extremely favorable earnings and two much stronger than
expected payroll reports. When one looks at the damage being done on the stock
charts, it is very clear that the US economy is really missing out on a rally
window.
DOW
With the big range down yesterday ending with the Dow right on its lows, it is
pretty clear that the market has more work to do on the downside. In fact,
unless the bulls pull a rabbit out of their hat, we see prices sliding down to
9,820 basis the June. Overnight, the June Dow did manage to bounce off a
critical trend line at 9,944 but it would seem like a pattern of selling rallies
is firmly entrenched in trade psychology.
S&P
The S&P rarely bottoms quietly and with the market posting another big range
down washout yesterday and failing to exhibit bottoming tendencies, we fear
another leg down ahead. In fact, unless there is a major change in headline
flow, we see the June S&P sliding to 1075 as the market made a lower low with
the slide yesterday and the fundamental slate doesn’t seem to offer up a
significant element of change!
FOREIGN EXCHANGE
US DOLLAR
Another new high in the Dollar is deserved, as the
trade comes into the session today seeing higher odds that the ECB will cut
interest rates by 50 basis points. While we are having a little trouble
justifying the sharp rise in the Dollar against the backdrop of disintegrating
US equity prices, it is clear that the market doesn’t have problem bidding up
the Greenback despite all its political baggage. Next resistance in the June
Dollar comes in at 92.39 but it is possible that the Dollar is headed to a new
trading range of 92.39 and 94.97. US economic information today is mostly second
tier but that shouldn’t stop the Dollar from grinding higher, especially with
the OECD predicting that the ECB will cut interest rates 50 basis points this
spring! Top of the up trend channel in the Dollar comes in today at 92.17.
EURO
A new low for the move comes compliments of the rate
cut talk. We suspect that the June Euro will only pause at the old low of 117.45
before eventually falling deep into the October and November 2003 consolidation
of 117.50 to 115.00. In our mind, the Euro zone will have show it has managed to
reach sustained positive growth, before the sellers back off of the currency. In
order to turn off the near term negative tilt it could take a close back above
118.83.
YEN
The yen is significantly oversold but the trend
looks to remain down. While the Nikkei made a slightly higher overnight trade,
we are convinced that the Yen is headed down to the 86.00 level. However,
leading indicator data from Japan was strong enough to prompt a minor short
covering pause in the downside and traders should consider banking profits and
looking to reset on a bounce to 88.47.
^next^
SWISS
With the Swiss falling back below moving average
levels last Friday and the currency holding well above the bottom of the down
trend pattern, more declines are ahead. Near term critical support comes in at
76.38.
BRITISH POUND
A massive overnight slide took out a number of
critical support levels in the Pound and could easily result in sustained stop
loss selling. With March manufacturing output declining 0.3% it is clear that
the market is disappointed and shocked by the lack of momentum in the UK
economy. Therefore, the sellers would appear to have control over the Pound.
CANADIAN DOLLAR
The ultimate culmination of the downside track in
the Canadian could bring the currency down to the 71.20 level. Traders should
consider selling the Canadian on a bounce to 72.16.
METALS
OVERNIGHT
London A.M. Gold Fix $378.00 +$2.90 LME
COPPER STOCKS 147,275 mt tons +375 tns COMEX Gold stocks 4.269 ml Unchanged
Comex Silver stocks 122.5 ml Unchanged
GOLD
While the gold market appears to be in a mode to
consolidate, we are not totally convinced that support under the market is
solid. From the Asian market dialogue it would seem like the trade remains
concerned about rising interest rates in China and the US and isn’t the least
interested in the potential for lower rates in the Euro zone. Therefore, the
market still seems to be vulnerable and continues to lack a definitive theme.
SILVER
The recovery bounce yesterday afternoon in the
silver market doesn’t change the fact that silver lacks a theme. The bounce also
doesn’t change the fact that silver continues to hold a moderately large small
spec and fund long position. Critical support in July silver comes in down at
$5.585 but we don’t think that silver prices are completely deflated until
prices have declined to $5.00.
PLATINUM
While the platinum market is showing signs of
recovery, the chart looks pretty entrenched in the downside motion. The Japanese
were interested buyers overnight but we think that is light bargain hunting
buying that won’t support the market over time. Unlike gold and silver, the
platinum market is probably pretty balanced in the small spec and fund long
position.
COPPER
While copper prices are higher overnight, there is
talk that a shipment of copper arrived at the Singapore LME warehouse and that
shipment came from China. In a market that is concerned about declining Chinese
demand patterns, the news that supply is flow out China, instead of flowing in,
and that is potentially a pretty big negative. However, over the last two
sessions Chinese copper prices have risen and that at least tempers the
bearishness in the marketplace for the near term.
CRUDE COMPLEX
It remains to be seen what the talk about higher
production will do to the bull trend in energies. It is a given that the markets
were moderately overbought and in need of a corrective swing, but the promise of
more production could push a number of speculative long players to the
sidelines. However, promising 1.5 million barrels of extra production for the
beginning of June probably doesn’t markedly alter the US supply situation at the
beginning of the US driving season.
NATURAL GAS
While the natural gas market came out of the recent
consolidation formation on the downside, the real direction of the market will
be determined by the crude oil. Unfortunately, with crude oil in a liquidative
posture, we have to think that natural gas will remain in a corrective mode,
with first support not seen until $6.21 and then again down at $616. The bottom
of the channel in July natural gas comes in at $5.83 and that could be an easy
target for the coming sessions.