Futures Point To A Higher Open
1/31/2005
INTEREST RATES
The Long bond comes into the monthly unemployment
report week, just off its recent contract highs. It seems that the cash market
is lifting the 30 year bond off yield curve interest. In fact, the Wall Street
Journal credit section this morning has a pretty upbeat article on the 30 Year
Treasury bond, as they suggest that Pension funds are looking favorably toward
the long bond, as the long bond supposedly matches long term Pension liabilities
better than shorter term maturities.
STOCK INDICES
The market would seem to be positively biased
into the opening this morning, as the outside market flows are positive and the
trade is certainly benefiting from the Iraqi election situation. In fact with
energy prices apparently under renewed selling pressure, it would seem like a
number of positives are coming together. On the other hand, we still get the
feeling that something isn’t exactly right with the bull case, or it may simply
be that many players are skeptical and hesitant to rush into stocks, until more
of the Iraqi election outcome is known.
DOW
It will be important for the March Dow to manage a close above 10,500 today and
for some systems it might be important for the Dow to close above 10,518. A down
trend line would be violated on the upside with a trade back above 10,529, which
interestingly enough is also an old gap area. In short, the trend is up this
morning but the market needs to impress with a significant reaction.
S&P
The March S&P needs to mount a rise above 1183.20 in order to even hint at a
trend change. We think that the March S&P should mount a run to 1187.80 off the
information seen since the close Friday, but we are skeptical of the bull’s
capacity. In short, we suspect that an early rally today will fizzle rather
quickly, as the market simply lacks buying incentive. We might also note that
the small spec long position in the S&P remained pretty overbought in the recent
COT report and that also makes us skeptical of the near term upside capacity.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is at least temporarily bailed out by the
favorable Iraqi election outcome, but the residual of the disappointing US GDP
reading last week limits the Dollar on the upside. With the G7 meeting looming
ahead we also have to wonder if the Dollar will come under pressure as a result
of severe budget and trade deficit lecturing from the ECB. In other words, the
coming G7 meeting will probably not see favorable talk regarding Iraq, but
instead the political opponents of the US will bang the drum on US deficits. If
the US economy doesn’t begin to show more signs of perpetuating growth, we might
expect the deficits to undermine the Dollar and set up a return to levels below
83.00. However, in the near term, we suspect that the Dollar has a chance of
getting out above critical consolidation resistance around 84.08, but if the
market can’t manage that off the Iraqi election and a potential US interest rate
hike, then we are not sure that an upside breakout will take place in the near
term. We are willing to give the Dollar another session to show some strength,
but then the failure to run up has to be considered quite disappointing for many
in the bull camp.
EURO
While the Euro showed some weakness in the overnight
action, the market rejected the weakness. Therefore the Euro isn’t going to
breakout to the downside off the Iraqi election. The political spin on the Iraqi
election is part of the reason for the Euro rejecting selling overnight, as at
least two major European newspapers thought that 31 deaths on election day were
the main story of the day. In other words, in the minds of many there was
nothing historically significant about the Iraqi election turnout and the step
toward democracy. In short, the market still isn’t ready to view the Dollar with
a more favorable tilt and that supports the Euro. Expect more range trade within
129.70 and 131.08.
YEN
While some analysts think that the upcoming G7
meeting will push forward on the floatation of the Chinese currency, it would
not seem like a major change is in the offing. Therefore, the Yen might slide
toward the bottom of the recent consolidation down at 96.56 but probably will
see a recovery rally into the actual G7 meeting. Near term resistance comes in
at 97.65.
SWISS
We would have expected the Swiss to be under
aggressive liquidation pressure today and that might still happen, but given the
solid reversal overnight it would not seem like the market is ready for a
downside breakout. Therefore, expect the Swiss to remain caught in a range bound
by 84.00 and 84.94. Apparently there wasn’t as much flight to quality premium
embedded in the Swiss off the Iraq election and that means that a stop loss
selling binge is unlikely without some fresh development.
BRITISH POUND
A disappointing UK January retail sales report
overnight has hardly dampened the action in the Pound, which remains poised at
an upside breakout point on the charts. In fact, the retail sales reading for
January was the poorest showing in 5 years and yet the Pound doesn’t seem to be
vulnerable! Critical support is seen at 187.38.
CANADIAN DOLLAR
Even after all the disappointing economic
information from Canada and the initial pro-Dollar spin from the Iraqi election,
the Canadian doesn’t seem to be floundering and prepared to slide. In fact,
while the path of least resistance is pointing down, we still want no part of
selling the Canadian.
METALS
OVERNIGHT
London Gold Fix $423.80 -$2.60 LME COPPER
STOCKS 45,675 metric tons +125 tons COMEX Gold stocks 5.969 ml +9,750 oz COMEX
SILVER stocks 102.3 ml Unchanged
GOLD
While the Iraqi election passed without a
significant anxiety event and the gold market looks to be under pressure this
morning, we are not convinced that gold is poised to breakout to the downside.
Certainly April gold appears to be set to slide toward critical chart support of
$423.7, but unless the March Dollar actually manages a trade above 84.08 we are
not expecting a major washout in Gold. The weekly COT report showed the net spec
and fund long in excess of 100,000 contracts and while that shows a minor
reduction in the small spec long, the market is still vulnerable to concentrated
stop loss selling.
SILVER
With silver sharply off the high posted Friday, gold
weak and the Dollar higher, we suspect that some liquidation will take place in
silver today. However, it is possible that the funds will be pulled into silver
at key points on the charts, as they seem to be moving in an out of silver. Near
term support in March silver comes in at $6.68 and then again at $6.60.
PLATINUM
The platinum market continues to show impressive
divergence to the rest of the precious metals markets. The COT report showed the
net spec long position to be 3,800 contracts, which is moderately overbought,
considering the overall small size of the open interest in Platinum. Near term
trend line support comes in at $867 and considering the rather steep up trend
channel, a violation of chart support could spark concentrated selling.
COPPER
Surprisingly the copper market comes into the US
opening with a slightly weak tone. In fact, with oil prices lower, equity prices
higher and global economic attitudes upbeat off the Iraqi election, we would
have expected copper to show a little more resilience. Shanghai traders are
seeing slackening interest ahead of the coming holiday period but we still think
that some Chinese players might buy forward and in effect help US copper futures
manage a rise to new contract highs.
CRUDE COMPLEX
As expected OPEC leaf production unchanged over
the weekend but the cartel also suggested that it would be unlikely to hike
production in the second quarter, when demand was expected to pick up!
Therefore, while crude oil market had part of its speculative heart ripped out
during the action last Friday, off the idea that OPEC was set to leave
production unchanged it would seem that prices this morning are still extracting
some excess premium from prices. Adding to the downside momentum last Friday,
were some rather wild comments from the Libyan Oil Minister, who suggested that
OPEC would cut production if prices fell by $8 to $13 a barrel. We think many in
the market thought that OPEC would be inclined to cut production in the event of
a much less significant decline in prices, but the comments seemed to convey a
much bigger tolerance on the part of the producers.
NATURAL GAS
The natural gas market had its support torn away by
the significant decline in the regular energy complex last Friday. In looking at
the upcoming weather it would seem like the forecast is mostly mixed, with cold
temps mixing with mild temps and that means mundane demand and potential
pressure on prices. Therefore, the natural gas market is probably poised for a
slide back toward consolidation support down around $6.00.