Futures Point To A Stronger Open
INTEREST RATES
While the track of Treasury prices is clearly
down, it would also seem like the market is fighting the downward action. It
should also be noted that the short-term technicals are somewhat oversold and
are showing some weak buy signals this morning. We have to think that the
Chinese tightening gives the hawks at the US Fed some satisfaction and that move
in a way could actually reduce the chance that the Fed will move early.
STOCK INDICES
Few traders would have expected stock prices to
perform so miserably in the face of record earnings but apparently the market is
just unwilling to shake the higher interest rate focus. With the Chinese
tightening threat another source of fodder for the bear camp, we would expect to
see prices continue to drift lower. Yesterday had all the hallmarks of a
potential bottom, but in the end, investors just don’t have the heart to forge a
critical bottom.
DOW
The June Dow is below the moving average at 10,324 and that suggests the trend
is down. Furthermore, the short term technicals in the Dow are also in sell
modes and that means that the market hasn’t declined enough to leave prices in
an oversold condition. In short, the path of least resistance is down, with a
near term objective of 10,182.
S&P
In order to shift the short-term trend back up, the June S&P would have to
regain 1124.90. In the near term we are still waiting for a big range down
washout that is rejected, just to call a low in this market. Because the market
continues to reject potential bottoming developments we have repeatedly lower
our long entry points. Keep in mind we are forced to project an opinion for the
entire trading session and this week the market has repeatedly reconfirmed the
need for more downside by its intraday actions. Our projection for a low is now
1101.50. Traders should expect another washout before a key low forms.
FOREIGN EXCHANGE
US DOLLAR
The Dollar appears to have lost the bullish tilt
that existed early in the week. In total the US economic numbers failed to live
up to the lofty expectations held by the market. However, we think that the
numbers were strong enough to see the June Dollar respect chart support around
90.55. In fact, with mixed European numbers overnight and the potential for
decently strong US personal spending and personal income readings, we expect the
Dollar to hold together. However, the June Dollar would fall below a critical
moving average level, with a decline below 89.51. So far, the trade is not sure
what the Chinese tightening claim will mean, but it is possible that the Chinese
move actually delays the US rate hike and that is a negative for the Dollar.
Make no mistake, the Dollar bulls need the rate hike threat just to hold the
Dollar up.
EURO
While Euro zone Consumer sentiment readings were
slightly higher, confidence was unchanged and German March retail sales declined
3.3%. Therefore, the Euro doesn’t get the type of numbers that would facilitate
fresh buying. However, we would expect to see some short covering off the theme
that the US Fed might not be as close to hiking, as the market expected at the
beginning of the week. Near term resistance levels in the June Euro come in at
119.70 but the downtrend isn’t even reversed, until the June Euro manages a
climb above 120.96. Near term critical pivot point support in the June Euro
comes in at 119.12.
YEN
Despite seeing Japanese stocks generally strong for
the second half of April, the Yen has been unable to shake the weak price
posture in the currency. The Yen is also seeing short-term technical indicators
shift into a buy mode and that might countervail the pattern of weakness toward
the end of the session today. In the near term the trend is down.
^next^
SWISS
It would seem that the Swiss is coming into favor
and that the Swiss might actually outperform the Euro in the coming sessions.
The Swiss reverses it’s downtrend pattern with a trade back above 77.88 today.
BRITISH POUND
While the short-term technicals are in a buy mode,
we see little fundamental reason to be picking a low in the Pound at current
levels. However, we suspect that the market will be able to hold even number
support of 175, unless the US numbers are significantly better than expected
this morning.
CANADIAN DOLLAR
While US numbers have under performed this week,
they haven’t been soft enough to temper the downward tilt in the Canadian. Even
with short-term technicals signaling a bottom, we are not inclined to pick a
bottom yet.
METALS
OVERNIGHT
London A.M. Gold Fix $387.30 +$4.55 LME
COPPER STOCKS 152,625 -650 tons COMEX Gold stocks 4.142 ml +156,888 oz Comex
Silver stocks 122.1 ml Unchanged
GOLD
With the gold market stronger even in the face of a
higher Dollar, it is clear that the liquidative tilt has been mitigated. While
the market is still fearful that the new Chinese guidelines will reduce gold
buying activity, it is premature to arrive at such a conclusion. With short term
technical indicators in a buy mode, we would not be surprised to see a recovery
back above $390 but the June contract encounters significant overhead resistance
around $395 and $400.
SILVER
Like gold, silver has also seen its short-term
technical indicators shift into a buy mode. The July silver should encounter
light resistance at $6.00 and then again at $6.26. In order to pull down the
small spec and fund long to a truly balanced level, the COT report tonight will
need to see a combined reading below 78,000 contracts but we are doubtful that
the market will see that kind of liquidation.
PLATINUM
The short-term technicals in platinum are in
aggressive buy modes this morning but it is unclear whether the Chinese
situation is going to discourage buyers from entering the fray. However, when
one considers the relatively small net spec and fund long position in platinum
and the of nearly $180 an ounce in the month of April it is possible that the
platinum market comes into the session today net spec short. In other words,
there probably isn’t a big contingent of vulnerable shorts and that should make
the low Thursday a potentially solid trading low.
COPPER
The copper market saw a massive 18,000 ton decline
in Shanghai copper stocks overnight and that should at least stem the tide of
selling off the idea that Chinese credit restrictions are going to kill the bull
market in copper. Certainly seeing the Chinese pull back on the reigns too much,
could be a disaster but there is no reason to think that will be the case yet.
We think the copper market bounced yesterday because the market is starting to
realize that US copper demand might step up and cushion any Chinese demand
contraction.
CRUDE COMPLEX
The energy complex managed to follow the typical
pattern again Thursday with prices showing some significant weakness but then
managed to recover most of the losses. Certainly seeing the potential for a less
violent resolution to the Fallujah situation is seen as a minor negative, but we
also think that some of the funds decided to bank some profits because they
feared the impact of the Chinese tightening. The US apparently released a
leading Sunni Cleric, (who was arrested last fall) back into the city of
Fallujah and some suspect that might cool tensions.
NATURAL GAS
The natural gas market faded off the larger than
expected weekly stocks injection of 78 bcf. Since it is the injection season,
part of the injection is discounted and because natural gas is already seeing
favorable early summer cooling demand patterns and generally supportive regular
energy complex price action, there is no reason why the market should break down
aggressively. We get the sense that the coming summer cooling season could start
early, as unusually high winds and periodically hot temps in many pockets of the
US, is a very different pattern than the market has been seeing over the last
three years! In the end, the track record for predicting weather beyond several
days is suspect, but with Midwest cooling use already beginning to show up, the
anecdotal evidence supports the bull case.