Futures Point To A Flat Open
11/19/2004
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INTEREST RATES
The bulls continue to manage a slight bit of
control and they are certainly being helped along by slightly disappointing
scheduled US economic numbers. While the claims yesterday could have been
considered slightly negative to Treasury prices, the rest of the economic
information favored the bull camp. The Philly Fed numbers were significantly
weaker than expected, but were somewhat countervailed by the fact that the
employment component actually managed a gain.
STOCK INDICES
The upward bias continues but from the action
this week, it is clear that the market is balancing its technicals a little and
at the same time is searching for fresh fundamental reasons to buy more stock.
It is clear that money is attempting to flow into the marketplace, but the
external fundamentals haven’t been as supportive as they were early in the
month. For instance, the energy market has apparently found a value zone on the
charts, the economic numbers have been a little soft and lastly the US Dollar
continues to show significant weakness.
DOW
The Dow shows anything but consolidation action overnight, with the market
managing a new high for the move. Given that the rate of gain this week was
tempered and the reports of massive liquidity, we have to think that the bulls
will control. Considering the pace of economic numbers this week, it is probably
a good thing that the report slate today is empty. Next upside targeting in the
December Dow comes in at 10,630, with support seen at 10,557.
S&P
The coiling this week should have corrected the overbought condition from last
week and that should leave the market in a position to run toward 1200.
Unfortunately the market doesn’t have several optimistic developments like lower
energy prices or favorable economic readings coming from the outside to
facilitate the upside as was seen in early November. However, the trend is still
up and a rise above 1186.10 early this morning, might draw in some money from
the sidelines and push the December S&P up to a new high of 1190.90.
FOREIGN EXCHANGE
US DOLLAR
Some suggest that comments from Snow regarding
market forces determining the value of the Dollar, give the impression that the
US will not intervene in the markets. However, there is also a rising chorus of
complaints from the Euro zone and Japan about the weak Dollar and with the G20
meeting this weekend, one might expect some pressure on the US. We suspect that
the US will turn the focus toward China and the need to float that currency. In
the end, we think there will be some sense that the Dollar slide will slow, but
that the trend will remain down. As mentioned a number of times before, the
Dollar might not turn until the ultra low exchange rate has actually begun to
change the way import/export business is transacted. Therefore, one might expect
consolidation above the lows ahead of the meeting, as some traders are afraid to
sell ahead of the meeting, but other traders might feel the need to push the
Dollar down late, in an attempt to draw out the intervention resolve. Therefore,
traders should probably stay short the Dollar but one might want to consider
buying December calls as cheap protection against a weekend surprise.
EURO
The Euro looks to rise toward new highs into the G20
meeting, as the Europeans want to be seen as an economic superpower. However, in
order for the ECB to act against the rising Euro they might have to be hit over
the head with excessive upside action. Therefore, we suspect that new highs are
to be expected. As suggested in the Dollar, the volatility in the Euro could be
quite extensive and for that reason those that are long the Euro futures should
consider utilizing some cheap December puts as protection against a wild opening
on Monday.
YEN
The Japanese stock market is beginning to register
daily concern over the Yen/Dollar exchange and there are indications that
intervention is being considered. However, we also think that the BOJ would like
to get a coordinated move from the meeting this weekend rather that fight the
tide themselves. Critical support is seen at 96.22 but the trend is still
pointing upward.
SWISS
The Swiss comes into the action this morning closer
to its highs than any other currency and in the time building up to the ultimate
intervention, or some other solution to the Dollar slide, we have to think that
the Swiss will lead on the upside. However, in the coming weeks one should not
be surprised that the Swiss manages a 200 point single day setback after forging
a sharp run into new high ground.
BRITISH POUND
The Pound continues to suffer the fate of sloppy
economic numbers but is still attempting to follow the rest of the currencies in
the wake of the Dollar slide. We suspect new highs in the Pound but we also
think that a sudden reversal will see the Pound gain aggressively on the Swiss
and the Euro.
CANADIAN DOLLAR
Since the Canadian has managed some fairly damaging
technical action this week, traders have to be defensive with long positions.
Relatively speaking, the Canadian has come a very long way and could in a sense
have the most to lose in the event of a change in fundamentals. Trend line
support and an extremely critical pivot point comes in today all the way down at
81.93.
METALS
OVERNIGHT
London Gold Fix $443.70 -$0.60 LME COPPER
STOCKS 64,025 metric tons +150 tons COMEX Gold stocks 5.358 ml +10,647 oz COMEX
Silver stocks 102.7 ml +1.20 ML oz
GOLD
While the gold market is showing signs of strength
this morning we have to wonder if the overly long small spec and fund
positioning will become concerned about the weekend G20 meeting. Yesterday the
pre-meeting dialogue was already starting to flow, with the US being asked to
control deficits and the US prodding the Euro zone to do more to stimulate
growth. Therefore, it is possible that intervention could be discussed but we
don’t get the sense that the parties are primed to act.
SILVER
Basis the March silver, the market managed to find
support on the overnight probe well above the bottom of the up trend channel at
$7.464. Like gold, we fear that silver is due for a more aggressive profit
taking correction. In fact we would not be surprised to see a correction similar
to the one that befell the market at the beginning of November.
PLATINUM
The Johnson Matthey report from November 16th
discouraged the bulls by suggesting that the market was moving back toward
balance and possibly toward a surplus. We continue to think that the technical
setup in platinum is negative and that the market just isn’t finding support
from bullish developments. In fact, overnight reports of an explosion at a
platinum facility in South Africa hardly even registered a fleeting reaction in
platinum, as it was nearly $6 lower in the early action.
COPPER
The copper market continues to show signs of even
more gains, even though the weekly Shanghai copper stocks managed a minor
increase of 270 tons and the LME stocks also posted a minor increase for the
day. While the December copper remains below the contract highs, the March
contract managed to forge new contract highs on Thursday. Therefore, it would
seem like the market is still extremely bullish in its forward look.
CRUDE COMPLEX
The energy complex continues to be locked within
a trading range that is basically bound by the highs and lows of this week’s
action. In the news Thursday, the market saw an offsetting mix of information
with OPEC production for October rising by 78,000 barrels per day, but at the
same time a private tanker monitoring service suggested that the most recent 4
week average export flow from OPEC actually dropped by 240,000 barrels per day.
OPEC itself seemed to be supporting the bull case Thursday, with comments that
suggested an urgent need to see a counter seasonal build up in heating oil
stocks.
NATURAL GAS
In thinking longer term, we will begin to track the
March Natural gas contract. For the natural gas market to finish lower yesterday
after seeing a draw of 6 bcf, it is pretty clear that the bear camp is still in
control. In fact, while it might be premature to suggest that the injection
season has ended it would certainly seem to us that demand has ramped up enough
to alter the seasonal pattern of inventory fluctuations.