Futures Point To A Higher Open
1/12/2005
Â
INTEREST RATES
We get the sense that the Treasury market has
overextended itself a little in the wake of mostly mixed economic information.
However, we also suspect that many longs are looking for a payoff today in the
wake of the US Trade Balance report. In fact, despite early estimates calling
for an improvement in the Trade figures, a number of longs think that the trend
to wider and wider trade deficits is still in the cards.
STOCK INDICES
The stock market violated a series of key chart
support levels yesterday and by most measures failed to reject the technical
failure into the close. In fact, with the Dow finishing right on its lows
yesterday, it is clear that few buyers are waiting on the sidelines to buy.
However, the shorts might have been crossed up a bit by the Intel earnings,
which came in good relative to late breaking expectations.
DOW
We have been harping on the overbought condition of the Dow futures for the last
week and given the persistent failure at chart support yesterday, we suspect
that the overbought condition has only just begun to be repaired. However,
unless the March Dow is able to rise above 10,600 on a close basis, we now
suspect that a low could be seen down at 10,525 later this week.
S&P
While the March S&P managed to reject the downside breakout below critical
consolidation support yesterday, the market did not forge the classic reversal
bottom signal. Therefore, we continue to fear a more dramatic decline. In fact,
because we don’t see macro economic optimism lifting stock prices, we assume
that stock prices will have to fall significantly just to inspire buyers, hence
the expectation of a big range down reversal pattern ahead.
FOREIGN EXCHANGE
US DOLLAR
The Dollar has shown some rejection of the recent
selling pressure in the early action today and is doing so off calls for higher
Asian exchange rates. ECB officials and U.S. representatives are both calling
for higher Asian exchange rates and that combines with the expectation for a
slight improvement in the US Trade Deficit report this morning, to give the
Dollar a near term lift. However, we are not sure that the Dollar is going to
find the strength to restart the up trend rally from last week, unless of course
there is something in the numbers this morning to suggest that a permanent
change has taken place in the whole US Trade Balance situation. We were
extremely bullish on the Dollar down around the December lows and thought that
the US economy was too strong to continue selling the Dollar, but given the
slack pace of numbers since mid December, we are becoming more skeptical about
Dollar prospects. We do think that high oil prices are the single most important
impact on the US trade balance and in order to see the US economy come to life
and for the Trade deficit to turn permanently, oil prices need to slide. We
suspect that the Dollar will attempt to rally, but traders should go with a
breakout of an 82.83 and 83.43 range. If you are long Dollar positions, consider
buying puts after a March Dollar bounce to 83.30 this morning.
EURO
The ECB is calling for higher Asian currency
exchange rates and that doesn’t seem to be an intervention threat. Therefore,
the Euro seems to be catching some short covering and some fresh buying into the
US Trade report. We are not sure what to make of the Euro zone 3rd quarter GDP
gain of +0.3%, as it wasn’t disappointing but it also isn’t that impressive. In
other words, one still can’t rationalize moving money in the Euro zone because
of an attractive yield expectation. We can’t argue against a March Euro rise
above 132.00 but we think overhead resistance is extremely thick in the Euro and
that big gains will only come if something really negative happens in the US.
YEN
Once again the yen seems to get the biggest lift out
of calls for a higher Chinese peg and the calls for higher “Asian” exchange
rates. Therefore, we can’t rule out a run up all the way to the December highs
and maybe even new contract highs. We suspect that the BOJ might be poised to
intervene above 98.50 but that probably isn’t a consideration for the action
today.
SWISS
It seems like the Swiss has solid support at 84.85,
but we can’t rule out a slide below 84.70 following the US readings this
morning. However, we doubt that the Swiss is poised to seriously extend the
January slide off current conditions.
BRITISH POUND
An improvement in the UK trade deficit seems to have
helped the Pound reject a very aggressive liquidation overnight. In order to
turn the trend in the Pound up, we think that the March Pound has to manage a
close above 187.66 today.
CANADIAN DOLLAR
We detect a little loss of momentum in the Canadian
rally and following the US numbers this morning the Canadian might see a setback
to 81.95, before the market respects support. In a longer term sense, we don’t
think that the Canadian is ready to restart the up trend, but fresh sellers of
the currency might have to wait for an even higher sell zone.
METALS
OVERNIGHT
London Gold Fix $421.70 -$.85 LME COPPER
STOCKS 47,375 metric tons -600 tons COMEX Gold stocks 5.864 ml Unchanged COMEX
SILVER stocks 103.4 ml +571,413 oz
GOLD
While gold prices managed to bounce moderately off
last weeks lows, we are not overly impressed with the action, especially when
one considers the pattern of declines in the US Dollar. However, the US Dollar
is a little higher this morning and that has undermined gold early. On the other
hand, the early strength in the Dollar should be put to a test into the US Trade
Balance report.
SILVER
While the silver market was impressive in its
ability to rally in the face of gold sloppiness, we are not sure that the whole
physical demand aspect is capable of driving silver back up into the early
December consolidation. In fact, without some positive leadership from gold and
or much stronger views toward the global recovery, we doubt that silver will
trade above $7.00 without first falling back below $6.50. Near term critical
pivot point support comes in at $6.59, with even more critical support pegged at
$6.49.
PLATINUM
Once again the platinum market forged an aggressive
sprint higher but then fell back from the highs rather quickly. We continue to
think that April platinum is overbought and lacks the trade support to sustain
prices above $860, especially if gold and silver are behaving poorly. Near term
critical support in April platinum comes in at $850 and near term resistance is
pegged at $860.4.
COPPER
The copper market managed to climb above 140 and
forged the run in a rather compacted move and that could leave the market
overbought. However, with Chinese copper prices managing to settle sharply
higher, the positive momentum looks to remain in place into the US opening
today. While we doubt that a strengthening Dollar will end the uptrend in
copper, it could serve to dampen the gains and increase the potential for
volatility.
CRUDE COMPLEX
The energy complex was generally positively
biased Tuesday but we are a little concerned about the coming weekly inventory
report. It is our opinion that the December production cut has yet to work
through the system and with US weather recently generally mild, we don’t expect
to see a supportive reading from the inventory figures today. However, in each
of the last two weekly inventory reports, the trade has at least managed a
fleeting rally before ultimately deciding that the numbers were indeed bearish.
NATURAL GAS
We continue to think that natural gas is getting
close to a bottom in terms of time, but we also can’t rule out a return to the
recent lows in the wake of the weekly inventory reports this morning. We are not
nearly as concerned about being long natural gas into the natural gas inventory
readings on Thursday as we are being long natural gas into the Wednesday morning
regular energy complex inventory stats. In other words, natural gas longs could
seem more pressure from the information today than from the information
Thursday.