INTEREST RATES
12/02 OVERNIGHT CHANGE to 04:02 AM:BONDS+3 The
March bond contract comes into the session this morning with a slight
negative fundamental and technical bias and near term support targeted at
106-23. According to the recent COT report, the bonds were slightly short
last week ahead of the holiday and certainly that position has expanded with
the action since the report was measured. In our opinion, the market is not
in a position to expect much support from the theory that the market is
oversold.
STOCK INDICES
12/02 OVRNIGHT CHG to 04:02 AM:S&P-80, DOW-8,
NIKKEI +6.8, FTSE-12 For a change, the stock market managed to maintain a
strong opening all the way into the close and that goes a long way in
erasing the negative sentiment generated off the mid November slide. We
still get the sense that many on Wall Street are skeptical of the bullish
capacity of this market and this economy. In our mind, the Challenger layoff
report this morning is a very critical report as that report seems to be
psychologically tilted and in our opinion can produce a worst-case reading
on the jobs market.
DOW
According to the last COT report, the Dow futures were net spec short nearly
9,000 contracts heading into the holiday action last week. Therefore, one
can hardly suggest that the recent gains have already put the market into an
overbought condition. Near term support comes in today at 9,860 and then
again down at 9,823 and we would be buyers at both of those support levels
today.
S&P
With the net small spec long in the S&P only 64,000 contracts heading into
the recent holiday, we do not think that the position has grown to an
overbought condition, which would be in excess of 110,000 contracts.
Therefore, unless a surprise negative fundamental development smashes into
prices, we have to continue favoring the long side. On a break to 1064.40,
we would buy the December contract looking to risk the position to 1056.80.
If the Challenger layoff report is patently bullish toward the recovery, we
might simply buy the S&P at the market.
FOREIGN EXCHANGE
US DOLLAR
The down trend in the Dollar is pausing,
possibly because the US numbers are so strong and partially because the
trade is a little concerned that the US is going to back down from steel
trade barriers. While it is folly to think that the US might abandon a
rumored bear position on the Dollar, because the WTO is forcing it to remove
steel trade restrictions, the combination of stellar US numbers and a
positive US equity market gives Dollar bears pause. In the near term it
might be possible to see a rise to 90.83 in the December Dollar and to 91.24
in the March Dollar. We might also add that the Dollar does have a gap to
fill that is about 30 points above the projected opening this morning. It is
possible that early US numbers give the bull camp in the Dollar an added
lift, so we would suggest that shorts in the Dollar exit, or buy some at the
money near to expiration calls for a temporary defense. There is really
nothing to suggest that the overall downtrend is halting but in the near
term the bias in the Dollar is up.
EURO
The December Euro should have near term support
down at 119.16 and the market would seem to stand at a critical junction.
One has to wonder what will happen if the US economy is judged to be much
stronger than expected as the Press is already playing up the idea that the
US Fed is closer to hiking rates than many realize. Furthermore, with the EU
posting an unchanged jobls reading for October it is clear that the US is
stronger and is growing whereas the Euro zone can’t make such a claim in the
jobs sector. Therefore, the near term edge goes to the bears but it is too
premature to call an end to the overall up trend.
YEN
The pattern of lower highs and slack momentum
looks to continue but the Yen probably has a short-term negative bias,
especially with the Dollar showing near term signs of strength. There is
nothing to suggest that the Yen is going to come out of the extended
consolidation and the near term path is toward slightly lower Yen pricing.
Longer term traders might buy the Yen on a slide to 90.77 but there is no
fresh reasoning to think that the up trend is going to suddenly manifest
itself again.
SWISS
Near term corrective targeting comes in at 76.49
and it would seem to be an easy task to send the Swiss down to that level in
the coming sessions. The Friday morning US reports will be paramount to the
direction of the Swiss later this week.
BRITISH POUND
Considering the short-term overbought status of
the Pound, a correction to trend line support of 170.27 would not be that
surprising. Regaining 171.97 would shut off the bearish tilt and signal a
recovery rally.
CANADIAN DOLLAR
Trend line support today comes in down at 76.17
and fresh longs probably have to risk positions to 75.75.
METALS
OVERNIGHT
GLD-1.50, SLV+2.00, PLAT+6.50 London
A.M. Gold fix $401.05 +$2.30 LME COPPER STKS 464,950 tons -1,900 tons COMEX
Gold stocks 3.06 ml Unchanged Comex Silver stocks 124.5 ml oz Unchanged
GOLD
Chinese prices were slightly higher overnight
and we continue to see fairly supportive international dialogue toward gold
by the Bullion dealers. Seeing nearby futures prices manage to hold above
the psychologically important even number benchmark of $400 is helpful to
the bulls. The COT report released after the close Monday, showed the small
spec and fund long position in gold to be 174,000 contracts.
SILVER
A net spec long in silver of 70,000 contracts is
probably slightly understated considering that the market rallied 16 cents
since the report was measured. In our opinion, the silver market isn’t
bought out until the net spec long reaches 95,000 longs. Critical support in
the March silver comes in at $5.45, while extremely critical pivot point
support comes in down at $5.395.
PLATINUM
The platinum market would seem to be poised to
rise to new contract highs, as the demand outlook is good and gold & silver
action doesn’t look to be a major influence. However, the recent COT report
put the net spec long position at 6,400 contracts and that is surely
underestimated considering that prices have rallied $21 since the report was
measured. Open interest in platinum is only 9,588 contracts and therefore
the spec long is a significant portion of the open interest.
COPPER
Chinese copper futures were slightly lower
overnight and that is to be expected considering the massive and possibly
overdone reaction Monday morning. In adjusting the recent COT report fund
and small spec reading in copper of nearly 35,000 contracts, for the action
since the report was measured, we peg the net spec long to be 49,000. In
other words, a 665 point rally probably added in at least 14,000 spec longs
in copper leaving the market a little overbought and vulnerable to a slight
but temporary correction.
CRUDE COMPLEX
12/02 OVERNIGHT CHG to 04:02 AM:CRUDE+18,
HEAT+60, UNGAS+25 The divergence between the regular energy complex and the
natural gas market was quite surprising Monday, as the natural gas seemed to
be getting short covering interest because of the weather, while crude and
heating oil saw no such support. The regular energy complex was put off by
the idea that OPEC wasn’t going to act in December, leaving supply and
demand conditions unchanged. While crude inventories have been tight they
currently stand at a 5 million barrel surplus to year ago levels while crude
oil price are roughly $6 above year ago weekly prices.
NATURAL GAS
We suspect that the forecast for an artic cold
blast next week prompted a large portion of a massive fund short in natural
gas to exit. We had been wondering how long the funds would hold shorts,
especially with the economy improving and winter fast approaching. With the
COT report showing the fund short to be 51,716 contracts, one might expect
to see even more short covering in the coming sessions, especially with a
cold blast looming for next week. |
