Futures Point To A Higher Open
12/3/2004
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INTEREST RATES
The Treasury market continues to factor in a
strong Monthly payroll report, or is simply seeing continued long term
liquidation off the rotation theme. It would seem that the market is primed for
a gain of 200,000 in the non farm payroll reading, but we get the sense that the
whisper number is even higher. In other words, we get the sense that the market
is leaning toward a bigger reading than is being published by the Press.
STOCK INDICES
The stock market saw a surprise boost overnight,
from an upward revision in Intel sales projections and strong drug stock
performance in Europe. While some were disappointed with the stock markets lack
of response to another steep decline in energy prices Thursday, significantly
lower energy prices are a benefit that serves to shore up the bull case. We are
a little surprised that the stock market didn’t soar yesterday under the energy
slide and the US Dollar rally, as those two issues have been holding the market
back over the last 2-3 months.
DOW
The Intel news certainly gave the Dow the impetus to gap higher overnight but
with the drug stocks also hot, the bull camp has some capacity to gloss over a
slightly disappointing US payroll report. In fact, unless one can distinctly
come away from the payroll report this morning disappointed, we have to think
that even more gains are ahead. Near term upside targeting in the December Dow
comes in at 10,727 and support is seen today at 10,600.
S&P
We suspect that the December S&P will test 1200 today, or sometime early next
week. Longer term objectives in the S&P are 1225, but it would not be a good
technical development, if the December contract were to fall back below 1180.80
today. As mentioned before, we think that longs should stay long, but could give
up part of the anticipated gains, to finance some put protection.
FOREIGN EXCHANGE
US DOLLAR
So far, the Dollar action is merely a bounce or a
correction in a bear market. However, if the US payrolls come in stronger than
expected we would have to think that more bears will have second thoughts about
pressing the short side of the Dollar. The Dollar continues to get the benefit
of significantly lower energy prices and that appeared to be a major negative
for the Dollar over the last 3 to 5 months. Many assumed that the US economy was
the most vulnerable to excessive oil prices and now that threat is being
reduced. However, the down trend in the Dollar is really entrenched and
attitudes might be difficult to change, without some significantly surprising
numbers from the US. Some traders suggest that the trend in the Dollar is down,
until it manages to regain a down trend channel resistance line up at 82.58,
while others see a major turn with a rise above 82.26. In short, assume the
trend is down, but also realize that there is a chance that the US numbers could
be a catalyst of change. As suggested yesterday, we are not as interested in
picking a bottom in the Dollar, as we are picking a top in the Euro!
EURO
Following the ECB meeting yesterday, ECB officials
seemed to draw a line in the sand on the subject of run away Dollar declines.
Unfortunately the ECB really didn’t get that specific but the market saw a
number of Euro longs decide to bank profits. However, as mentioned before the US
will have to post much stronger than expected economic readings to get the
attention of the market and turn the trend in the Euro. In fact, unless the
December Euro manages a decline below 132.20 today, we doubt that a full
technical washout will unfold. We continue to suggest that traders play for a
major top, through a risk defined, leveraged put position. Buy 4 March Euro
124.50 puts for 25-30, looking for a major reversal sometime in the coming
month.
YEN
The Yen has made a significant failure on the charts
overnight, but unless the December Yen remains below 96.73 we don’t expect to
see follow through selling. Another critical point on the Yen chart comes in at
96.52. The Japanese posted good economic numbers overnight and also suggested
that quantitative easing would be “an emergency step” in controlling the Yen.
Therefore, the BOJ is still leaning toward intervention, but might not be as
close as the bear camp would like.
SWISS
While the Swiss has forged a partially negative
technical move in the last 24 hours, as long as the Swiss holds above 86.55 we
are not concerned about a major downside thrust.
BRITISH POUND
The Pound forged a massive range yesterday and is
currently sitting just above the support provided by the lows Thursday. Lower
housing price readings from the UK stem some of the inflation concerns and that
could be a slight negative for a market that has been on fire for the past three
weeks.
CANADIAN DOLLAR
We continue to think that the Canadian has forged a
major top. The technicals are breaking down and the US seems to be ready to
drastically improve its macro economic outlook. One has to look at what drove
the Canadian higher over the last 6 months and then it becomes clear that parts
of that equation has changed. Continue to hold 2 June Canadian 79 puts for a
long term position play.
METALS
OVERNIGHT
London Gold Fix $449.15 -$5.15 LME COPPER
STOCKS 57,000 metric tons -1,700 tons COMEX Gold stocks 5.374 ml +15,600 oz
COMEX SILVER stocks 102.8 ml Unchanged
GOLD
While the Asian trade seemed to balk at taking a
position ahead of the US payroll report, from the action Wednesday we would
think that a strong US payroll reading could still manage to lift gold prices,
unless the Dollar suddenly begins to pay attention to the prospect for a much
stronger US economy. Recently there has been very little that seemed to support
the Dollar. However, we are beginning to change our opinion on the Dollar, as
the steep slide in energy prices, talk of intervention and improving US numbers
should not be denied.
SILVER
Already the silver market has forged a significant
correction and since the market posted most of the gains in two sessions, a
large portion of the bull camp is anything but entrenched. There is very little
support in March silver until $7.87 and then again at $7.82. Unfortunately the
bottom of the uptrend channel in March silver is all the way at $7.79.
PLATINUM
Since the platinum didn’t follow gold and silver up
as aggressively as one might have expected, it could also be somewhat insulated
against a liquidation washout today. Critical support today in the January
platinum comes in at $872 and then again down at $865.
COPPER
The copper market continues to be vulnerable on the
charts and with Shanghai copper stocks posting a 3,100 ton increase this week,
we can understand the weak bias in prices. The Shanghai copper stocks currently
stand at 26,452 tons, which is still a pretty tight number considering the open
interest in that market. The Chinese copper market was sharply lower overnight
and that suggests that a decline to 135 is possible in the March US futures
contract in the coming sessions.
CRUDE COMPLEX
The downdraft in the energy complex continues, as
the technical stop loss selling pressure gave the market follow through momentum
Thursday. It is also possible that early comments from the Nigerian President at
the White House yesterday facilitated the downside action, as he suggested that
it would be sending the wrong signal to the market to cut production in the
upcoming OPEC meeting. Nigeria also seemed to touch on the potential for them to
increase production and that was viewed as a negative development.
NATURAL GAS
As we feared the natural gas market had one more
shoe to drop before the market was fully liquidated. While the market still saw
a draw of 5 bcf, the annual surplus expanded moderately. It should also be noted
that the prior week’s inventory draw was revised downward, and that gave the
market the added impetus to forge a full capital liquidation break.