Futures Point To A Lower Open
12/10/2004
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INTEREST RATES
bulls have to be disappointed with Thursday’s
action in the bond market. A disappointing 10 year note auction, with little
foreign or Central Bank interest, soured sentiment despite sharp gains in the
energy sector, a continued rebound in the Dollar and more negative corporate
earnings warnings. March bonds failure to follow through above 113 supports our
view that the market is in the midst of developing a major top.
STOCK INDICES
Stocks traded weaker over night as another sharp
rise in energy prices and profit taking ahead of today’s PPI number offset the
benefit of another sharp rise in the Dollar. After early negative news stocks
were able to make a solid rebound back over critical support levels Thursday
with prices rallying back toward the upper end of the recent trading range.
Initially the market was dragged lower by more negative earnings warnings by US
computer chip makers.
DOW
The March Dow has moved solidly back to the middle of its recent range and like
the S&P, the market continues to attract solid buying below critical support at
10,450. All it seemed to take were a few good earnings outlooks for a couple of
Dow stocks to see investors jump back in on the long side. The March Dow’s next
resistance hurtle will be the 10,600 level.
S&P
Although the March S&P took out Wednesday’s lows on Thursday, the sharp rebound
from the low is a good technical sign. Next key resistance will be the 1200
level while support moves up to 1186.50 for the March contract then the critical
pivot point at 1180.
FOREIGN EXCHANGE
US DOLLAR
Another wave of Dollar buying over night has pushed
the currency over the 83 resistance level which should flush out more weak short
position holders this session. While the Euro seemed to stabilize against the
Dollar on Thursday, the Yen, Pound and Canadian continued to incur losses which
further convinces us that these currencies have establish major tops. Over night
the Mar Euro was pushed below critical support at $1.32 and that means selling
could snowball. With rates peaking in the UK and Canada, the Dollar should have
more of a readjustment higher against these currencies. The dismal economic
readings coming out of Japan means that the Yen has way over extended on the
upside out of sheer speculative negative Dollar sentiment that is not supported
by the currency’s underlying fundamentals. The PPI number could have a more
significant impact on currencies, especially if the number comes out at +.3% or
higher as a hot reading may rekindle ideas that the Fed may have to take a more
aggressive rate hike campaign. However, looking at the March Dollar chart, the
rally this week is still just a correction within the bear trend. However, since
the March contract has pushed through the 83 level, another wave of broad based
Dollar buying is developing. The Dollar needs to keep the upside momentum going
or we fear the bears will be back with a vengeance.
EURO
The Mar Euro’s break below critical support at $1.32
leaves little chart support until the $1.3080 to $1.3000 area. While it appears
that traders holding long Euro positions remain bullish on the currency
longer-term, a money break into the end of the year could pull the currency back
below the $1.3000 level.
YEN
The dismal economic reports coming out of Japan this
week is causing a major readjustment in the country’s exchange rate with the
next downside target in the March Yen between 94 and 93.60. The currency’s
fundamental are still way out of line with its value. Resistance for the Mar Yen
is between 95 and 95.60.
SWISS
The March Swiss was not immune to another buying
wave in the Dollar with prices barely holding support at 86 in over night trade.
The Swiss is likely to follow the Euro direction much more closely than any
other currency and with the Euro breaking below key support a break in the Swiss
back to 85 looks possible.
BRITISH POUND
With rate hikes on hold and the UK trade deficit
widening, we would think the pound could pull back further after rallying to 12
year highs this week. The market is extremely over bought and the break under
190 support over night puts 1.8750 as the next downside target.
CANADIAN DOLLAR
Using a Fibonacci retracement of the May low to
November high, the March Canadian could pull back to 79.88 before hitting
the.382 retracement level. With rate hikes on hold, there is a lot of hot air
that needs to be taken out of the market. Prices are becoming somewhat over
sold, but there is pretty solid resistance between 82.50 and 83.00. Stay long
our recommended to buy 2 June Canadian 79 puts for 48 as the longer term trend
is down.
METALS
OVERNIGHT
London Gold Fix $433.90 -$3.20 from
previous fix. LME COPPER STOCKS 55,975 metric tons -1125 tons COMEX Gold stocks
5.564 ml +3,440 COMEX SILVER stocks 103.4 ml UNCH
GOLD
The precious metals markets are still under the
influence of a money liquidation break as funds continue to exit the markets
after building up a record net long position. The Dollar was higher overnight,
triggering more profit taking by funds in London ahead of year end. Metals
market basically ignored a sharp rise in energy prices and a mostly lower stock
market Thursday, as the fundamentals are having very little impact right now
until the market becomes more balanced technically.
SILVER
Thin market conditions have accelerated the break in
March silver and the push below 6.75 support puts the market in jeopardy of
falling all the way back to test the September consolidation around 6.25.
PLATINUM
Platinum has held steady since falling to the bottom
of its 5-month consolidation pattern on Tuesday. The fund liquidation pressure
is not a great as it is for gold and it appears to have made its big move
already. The fact that the specs are not as heavily long in platinum lends hope
to the idea that yesterday’s low at $813 will hold.
COPPER
March copper was able to hold critical support at
130 despite continued gains in the Dollar. The market now appears to be
approaching oversold levels, although a break to the 127.50 to 125 Oct
consolidation area cannot be ruled out. With US economic numbers weak so far in
the 4th quarter, warehouse stocks declining at a slower pace and the stronger
Dollar paint a negative picture for copper near-term.
CRUDE COMPLEX
Energy markets were up sharply overnight as the
latest news out of the OPEC meeting indicated members, including Saudi Arabia,
are in full agreement that excess production over the 27 million barrel per day
quota needs to be cut. Heating oil led the complex higher in Thursday’s trade,
but unleaded gas looks to have taken leadership overnight, as the markets
continue to gain ground from a supportive API/DOE stocks report this week and a
larger than expected draw in natural gas stocks. With heating oil stock below
year ago levels going into the coldest winter period, the market had become
extra sensitive to any OPEC talk regarding production cuts.
NATURAL GAS
A larger than expected draw in natural gas stocks
combined with another sharp rally in heating oil prices lifted Feb natural gas
prices back over $7 on Thursday and the OPEC announcement has sparked more
upside action over night. Natural gas storage fell 88 bcf for week of Dec 3rd
while the market was looking for about a 70 bcf decline. While the year ago
surplus actually rose to 227 bcf vs 204 bcf the previous week, gas prices were
able to over come this negative helped by a continued rise in the rest of the
energy complex.