Futures Point To A Stronger Open
INTEREST RATES
The market is apparently convinced that the odds
of a June rate hike are pretty high. It seems that the trade digested the
Greenspan testimony and sees the increased potential for higher interest rates
ahead and is acting accordingly. The fact that the US economic report slate
really hasn’t improved this week, is of no concern to the market even after the
numbers last week were notably weak.
STOCK INDICES
While the Fed might say that rates are on hold,
the stock market wants to believe otherwise. In fact, until the current
sentiment mix is washed out of play, it would seem that the progress of the US
recovery is going to be viewed as a negative. Even in the face of even stronger
earnings reports, the market decided to focus in on the interest rate situation.
DOW
Trend line support in the June Dow comes in all the way down at 10,142. With the
market hunting for the negatives, it is clear that we haven’t found a low yet.
However, if there is a distinct fundamental headline shift and the Dow is at or
even slightly below current levels, we would consider a very aggressive long
play. Initial support in the Dow is 10,250 and then again at 10,215.
S&P
Our pick for a major bottom in the June S&P is down at 1100.95 but the market
only goes to that level if it fails to close higher today. In short, we would
like to see another big range down washout and a rejection of that break within
the session but the COKE earnings should deny that opportunity. We are more than
willing from a fundamental perspective to be aggressively long the S&P but the
market needs to shake the rate hike focus.
FOREIGN EXCHANGE
US DOLLAR
With a massive gap up probe, the Dollar seems to be
hinting at even more gains ahead. One would think that an economic mismatch is
taking place in looking at the recent US stock market action and the action in
the Dollar. However, in the near term the prospect of higher interest rates is
trumping all other considerations. The fact that the Euro zone economy is nearly
back on its heels, means that almost any growth pace in the US is significant.
With the world hunting for yield, the prospects in the US are a distinct
attraction. Traders might attempt to push the June Dollar up to 92.50, which is
the October through November 2003 consolidation zone. Since the market is
obviously being driven up by the prospect for higher US rates, it will be
important for the US Fed Chairman to maintain the same posture in testimony
today. We seem to get the sense that today’s dialogue might focus a little more
on the economy and that might actually slow the rate of climb in the Dollar
slightly.
EURO
Apparently the German central bank has solved its
leadership flap and that probably reduces the selling pressure on the Euro by
only a minimal amount. In other words, the Euro has significant technical and
fundamental problems. In the near term, no one is willing to give credit to the
recovery in the Euro zone and even fewer think that rates are anywhere near
turning away from the downward bias. Therefore, the Euro looks set to slide
toward support of 116.95. The trend is down and steep losses are expected.
YEN
Even the Yen is under attack and has violated
significant chart support levels. Therefore, the next downside targeting in the
Yen comes in at 91.20 and then again down at 90.80. Even hope for a growing
Japanese economy and strong corporate earnings don’t seem to be discouraging the
selling in the Yen. For now, the trend in the Yen is down.
^next^
SWISS
In order to reach down trend channel support, the
Swiss would have to fall to 75.45!
BRITISH POUND
Trend line support in the Pound comes in all the way
down at 173.55. Some traders are suggesting that the Pound has a massive head
and shoulders top formation that could project prices down below the 170 level.
CANADIAN DOLLAR
In the near term, the Canadian is going to feel the
pain from the aggressive Dollar rally. Longer term the Canadian should benefit
from the US recovery but in the near term, the Canadian could easily fall down
to 72.65 and possibly to 72.10! The significant consolidation time over the last
6 months in the C$ might now actually serve to add to the liquidation tilt in
the currency, as a vast portion of position longs are forced to liquidate
positions.
METALS
OVERNIGHT
London A.M. Gold Fix $393.75 -$5.05 LME
COPPER STOCKS 160,300 +5,250 tons COMEX Gold stocks 4.00 ml +6,293 oz Comex
Silver stocks 122.6 ml -17,434 oz
GOLD
With the Dollar gapping higher and to the highest
level since November 27th, it is understandable that even more longs liquidate.
Because the market evidently sees economic uncertainty to be declining, a number
of longs are scrambling for the exits. The liquidation effort is amplified by
concerns that the US Fed might hike interest rates, as early as June.
SILVER
Like gold, the silver market has seen the backbone
of the bull market broken. While the overnight liquidation effort was extensive,
we doubt that the extent of the selling has run its course. With the silver
market recently holding a record net spec and fund long, there is certainly more
selling fuel in the market.
PLATINUM
Like silver, platinum is feeling the downside pull
of gold and is also seeing the pressure of fund liquidation. We have to think
that the funds are watching a cross section of markets and are now in a
moderately negative posture. Reports of soaring platinum jewelry prices and talk
of higher production from Inco adds to the negative technical tilt in platinum.
COPPER
Like the other metals markets, the copper market
appears to be in an all out liquidation wash. Adding to the negative sentiment
are reports of overnight selling in China and London. To turn up the heat on
copper, the market also notes a rather surprising out of pattern rise in LME
stocks.
CRUDE COMPLEX
The energy complex probably faded off the fears
that the weekly inventory report would post yet another big crude stock build.
While estimates only call for a 1 to 3 million barrel crude stock build, the
trade is fearful of a repeat of recent data, which has produced periodically
large builds over recent weeks. In looking at the gasoline supply patterns of
the last 11-years, it is clear that stocks should be on the rise, but so far
they have counter-trended lower.
NATURAL GAS
The Natural gas market managed another new low for
the move but rejected those lows, despite a lack of clear cut guidance from the
regular energy complex. We still think that the trend is down and that natural
gas could be pulled down by an inventory inspired slide in crude oil. We don’t
see June natural gas bottoming until prices test $5.46.