Futures Point To A Mixed Open
INTEREST RATES
The Treasury market has managed to bounce off the
recent consolidation lows that had formed just above the 104-00 level in the
June bonds. With the Fed suggesting that they are not concerned yet with the
rise in Treasury yields, the market might be a little less interested in
snapping up bonds around the recent lows, but in general yield players are
managing to provide enough long interest, to at least stall the downside
pattern. Talk from the Fed that high energy prices are going to “retard†US
growth, is also supporting Treasuries, especially since the IEA thinks that high
prices are here to stay.
STOCK INDICES
Part of the overnight international equity market
gains were simple follow through from the favorable US action Tuesday. However,
we also think that some of the persistent negativeness dogging the market over
the last two weeks, is now lifting. However, the market is justifiably concerned
about soaring energy prices, with many respected sources fearful that energy
demand is rising fast enough to entrench prices at current lofty historical
levels.
DOW
The June Dow has consolidation support at 9,950 and should be able to hold that
support. However, given the persistent preference for the downside the market
will have to prove that it can respond with long interest. There seems to be
enough favorable earnings information and upbeat talk on the direction of the
world economy, but the stock market has been discounting the positives since the
early April highs. In conclusion, if the Dow fails to hold, we doubt that
interest rate fears will be the primary force driving prices down. In order to
turn some technical signals positive, the June Dow will have to regain 10,018 by
mid session!
S&P
While the S&P doesn’t have a good record of rallying from the type of bottom in
place on the charts, the improving fundamental outlook should at least take the
momentum out of the recent downside pattern. Certainly the market can hold onto
the rate hike issue and it can also embrace the fear of rising energy prices,
but eventually the market should realize that companies can profit in the
current environment. In order to turn the trend up in the S&P, the June contract
needs to regain the 1095 level by mid session. This market deserves a near term
rally similar to the late March rally that took the S&P from 1085 to 1150.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seemed to be a bit overbought around the
highs Tuesday and with the Yen and Canadian making some gains against the
Dollar, it was clear that a back and fill swing was in order. In fact, with the
US economic report slate thin again today, the market might see some temporary
profit taking. With the bottom of the February to May up trend channel a long
way down on the charts, it would not be surprising to see the Dollar slide into
the Thursday morning US reports. Middle of the up trend channel, in the June
Dollar comes in at 91.20, with more significant support seen coming in at 91.00.
Maybe a soaring US trade deficit will accelerate the short term selling in the
Dollar, but we doubt that the up trend is set to come apart anytime soon.
EURO
Considering the sideways basing in the Euro and the
profit taking mode in the Dollar it is possible that the Euro mounts a slight
upward bounce. A Wall Street Journal article has the OECD suggesting that the
Euro zone needs to cut taxes, to stimulate Euro zone recovery progress and some
traders might see that as an alternative to cutting interest rates. Seeing the
potential for growth without lower rates, is possibly a reason to bid up the
Euro temporarily from its oversold condition. Look to sell the Euro on a rise to
119.14.
YEN
The Yen is apparently poised to bounce off a severe
technical oversold status. Therefore, one might be surprised by the magnitude of
the bounce. Critical resistance in the June Yen comes in at 88.98 and then again
at 89.20. Nippon Mining and Toyota earnings soared and that gives the yen a near
term but temporary lift.
^next^
SWISS
The Swiss remains entrenched in a down trend pattern
but could easily bounce to 77.40 without altering chart patterns. Aggressive
traders could sell the June Swiss at 77.38 with an objective of 76.00.
BRITISH POUND
The BOE is really concerned about rising housing
prices, the CPI and oil prices and that seems to stand in the way of the
overnight short covering bounce. Until the June Pound manages to close above the
down trend channel resistance line of 180.92, the trend is pointing down.
CANADIAN DOLLAR
The down trend channel in the Canadian is extremely
steep and that makes a sustained recovery difficult to come by. In fact,
temporary support at 72.00 probably won’t hold the Canadian up for long!
METALS
OVERNIGHT
London A.M. Gold Fix $380.15 +$3.15 LME
COPPER STOCKS 146,875 mt tons -400 tns COMEX Gold stocks 4.269 ml Unchanged
Comex Silver stocks 122.5 ml Unchanged
GOLD
An impressive upside probe overnight puts the gold
market above near term resistance and into a quasi recovery mode. However, while
the Dollar might be showing some signs of weakness, we are not sure that traders
can bet on sustained downside in the closely watched currency. The action over
the last three days partially confirms our suspicion that the lower $370 price
level, is cheap zone.
SILVER
So far, the silver market hasn’t managed an
impressive bounce like the gold market and that could be the result of less
speculative interest in silver. We think the large funds dominated silver in the
rally, exaggerated the recent washout and now are largely staying on the
sidelines. We also see silver benefiting less from current conditions, with
traders sticking to gold possibly because of its closer track to inflation.
PLATINUM
Since the platinum market has the best fundamental
setup off all the precious metals, it deserves to rise along with gold. A story
out of London talks about improving palladium fundamentals and that simply
highlights the generally positive condition of all platinum metal group metals.
In other words, the interest in palladium is a direct result of tight
inventories in platinum and rising world emission control demand! Near term
resistance comes in up at $794.
COPPER
Renewed concerns for credit tightening hit the
Chinese copper market overnight. Apparently the government continues to send off
signals that tightening is ahead and that caused Chinese copper prices to track
sharply lower. With the Peoples Bank of China indicating that policy was going
to facilitate a slowdown in activity, we see US copper prices losing most if not
all off the recent upside tilt.
CRUDE COMPLEX
The energy complex returned to contract highs
quicker than we expected, but we had not expected fresh supply threats to
surface in relative proximity to the OPEC promise to supply more oil to the
market. With coup attempt rumors swirling in Venezuela and ethnic tensions
inside Nigeria holding just below a boil, there is more than one reason to fear
tighter supplies and even higher energy prices. The US Administration continues
to stand by the filling of the SPR and staunchly suggested that there would not
be a release of reserves to deflate prices.
NATURAL GAS
While the natural gas market was poised for a
corrective slide, the sharp recovery in crude prices shifted sentiment quickly
back into the bull camp. Moderate increases in cooling demand are beginning to
eat away at inventory builds and we suspect that speculative traders are going
to be pulled back into the market, as a result of the new contract high probe
Tuesday. The natural gas market could have been undermined by reports that the
April natural gas stocks were 47% above year ago levels, but with inventories
holdings roughly 2% below the 5 year average, one can still suggest that
supplies are tight.