Futures Point To A Higher Open
2/8/2005
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INTEREST RATES
In looking at the March/June spread action it
would seem like some longs are simply rolling out of the March and into the June
contract, but in general the bulls seem to be in control of prices. As mentioned
in last two days comments, the technical condition of bonds probably isn’t that
overdone considering the net short reading in the last COT report. However, the
fundamental track might not be as favorable to Treasuries over the coming three
sessions, as the quarterly refunding process gets underway with a 3-year Note
auction this afternoon.
STOCK INDICES
While some components of the market finished the
session lower on Monday, we still get the impression that bulls have a bit of
control. The Wall Street Journal was correct in playing up the fact that stock
prices managed to hold a large portion of the recent gains, despite the
corrective posture on Monday. In other words, the market seems to have a solid
foundation and would seem to have a conservative forward view on the economy.
DOW
The March Dow didn’t finish lower yesterday, which suggests that the big cap
sector has a little more support than the rest of the complex. Near term
critical support in the March comes in today at 10,581, with near term upside
targeting coming in at 10,750. If the Cisco earnings after the close today,
rekindle the favorable earnings psychology in place last week, we suspect that
the March Dow will make a bid at the 10,800 level by the end of the week! The
bias is up but ranges might be rather narrow today.
S&P
As long as the March S&P manages to hold above the critical pivot point of
1197.30, we will remain bullish to the market. However, we are concerned about a
lack of bullish themes in the early going today and with the market still
overbought, we can’t rule out more minor profit taking. On the other hand, the
ability to hold above 1200 in the first couple hours of trade this morning might
signal a near term target of 1207.80.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to rise in what some would call
a defiance of gravity. Contrary to recent headlines and market fears that
foreign central banks are rotating investments away from US holdings, it would
seem like foreign buyers are actually snapping up US instruments. Maybe the
Dollar is rising because foreign holders were so invested in US Treasuries that
they couldn’t exit the holdings without damaging their positions. On the other
hand, a certain portion of the market thinks that the US economy is
significantly ahead of the growth rate being seen in the Euro zone and that
could also be driving money toward US investments. Some even suggest that
falling energy prices and the apparent lackluster response from OPEC would seem
to allow for even lower oil prices and that in turn could in turn take
significant pressure off the US economy. In other words, seeing even less
resistance to US growth might actually result in a surprise surge forward in US
growth and that could justify the sharp upward extension in the Dollar. If
someone would have suggested last month, that the Dollar would rise sharply in
the wake of a soft non farm payroll report and almost nothing significant from
the recent G7 meeting, we would have been extremely suspicious. In the end, the
trend is up in the Dollar and long term stop loss buying looks to fuel the run
to fill the gap area up at 85.75 to 86.10.
EURO
So far the Euro has managed to hold above the prior
days lows, despite the fact that the US Dollar is sharply higher again this
morning. Therefore, it would seem that the Euro is being spared some of the
selling. In other words, the market looks to be focusing on the Asian currency
exchange rate issue instead of the Euro zone and Euro zone economic weakness.
While the March Euro might be able to respect support at 127.50 this morning, we
still can’t rule out a slide down to the late October/early November
consolidation zone at 126.61.
YEN
As suggested in the Euro comment, the biggest impact
off Dollar strength this morning, seems to be selling in the Yen. In fact, with
the big washout overnight, it is possible that the March yen manages a slide all
the way down to the 94.00 level. With the head of the Asian Development Bank
calling for China to move toward floating or more flexible exchange rates we
suspect that the Yen is indirectly influenced. Therefore, a slight negative tilt
looks to dominate the near term trade.
SWISS
While the Swiss is significantly oversold, we see
nothing from the fundamental front to suggest that the downside thrust has run
its course. In fact, from the technical perspective it would seem like the Swiss
has very little chart support until 81.55.
BRITISH POUND
Despite a very negative chart trade overnight, the
Pound appears to have recoiled from a sub 185.00 trade, as if that is a solid
support zone. In short, we don’t see the Pound falling below the 185 level
without something new in the headlines.
CANADIAN DOLLAR
While the Canadian had decent economic reports
yesterday and would seem to have found some chart support, we are not inclined
to call for a bottom yet. In fact, those that get long the Canadian at current
levels. would probably have to risk the position to at least 79.07.
METALS
OVERNIGHT
London Gold Fix $411.50 -$3.00 LME COPPER
STOCKS 54,025 metric tons +3,200 tons COMEX Gold stocks 5.948 ml -29,056 oz
COMEX SILVER stocks 102.3 ml Unchanged
GOLD
The gold market showed signs of throwing off the
negative tilt yesterday and we give the market credit for its ability to avoid a
massive slide off the combination of central bank gold sales threats and the
sharp rise in the Dollar. However, with the Dollar higher again this morning and
Asian players partially on holiday, the pressure looks to remain in place. In
fact, we doubt that gold will even get the slightest benefit from news that
South African gold output fell by 8.4% in 2004 and was down another 1.6% in the
last monthly reading.
SILVER
With the gold falling through another layer of
support, a partial Asian holiday and technical damage on the charts, we suspect
that May silver is headed down to the $6.50 consolidation lows. In fact, under
extreme outside market pressure, the May silver could easily slide to the
January low of $6.405. Therefore, traders should adjust long entry points into
the May contract and down to $6.45, with a stop down at $6.25.
PLATINUM
A massive downside failure in platinum doesn’t
surprise us, as the market was overly long and holding at extremely expensive
historical levels. Furthermore, we suspect that slightly reduced Asian trading
interest left the market vulnerable to selling. With trend line support violated
at $864 the April contract might be set for a slide to $850 and possibly even
$845.
COPPER
A rather surprising increase in LME stocks would
seem to further a bearish pattern that started last week. With the weakness in
the precious metals markets, the Asian holiday and the recent rise in stocks, we
suspect that copper prices will be under pressure today. However, given the
impressive nature of the recoil off the early February low, we suspect that
copper will have a tendency to hold in a range defined as 138.10 to 135.40 basis
the May contract.
CRUDE COMPLEX
The energy complex fell through a series of
critical chart support levels yesterday and did so despite early concerns of
weather disruptions in the North Sea and talk of lower January OPEC output. In
other words the market discounted several bullish stories and in the process
managed to fail on the charts. We suspect that the ongoing mild temps and the
weekend OPEC dialogue prompted the liquidation.
NATURAL GAS
As we suspected, the April natural gas market
remained under pressure on Monday and with the regular energy complex failing to
check up at support and the weather forecast still mild, even more losses are
expected. However, we are not sure that the market has enough bearish
information on its side, to smash prices down below critical pivot point support
around $6.00. In the event that the regular energy complex continues to
capitulate and in a sense extract the winter premium, we suspect that April
natural gas will at least temporarily slide below $6.00 and retest the $5.85
level.