Futures Point To A Higher Open
12/13/2004
INTEREST RATES
While the Bonds have managed to consolidate the
gains from early last week, it is clear from the COT report that opinions are
conflicted. With the funds net long 69,000 contracts and the small spec camp net
short 43,000 contracts, the net "Spec" positioning is only moderately long but
it is also clear that the small specs and funds have drastically different near
term views on where Treasury prices are headed. In the near term, the market is
poised to see the Fed move to hike rates in another incremental move, but prior
to the Fed meeting we suspect that the market will get economic report readings
that provide the bulls with a little support.
STOCK INDICES
Surprisingly the stock market continues to forge
positive chart patterns in the face of mostly disappointing scheduled economic
information. However, the stock market is getting favorable information from the
corporate sector, as an announced merger this morning between Oracle/PeopleSoft
and a merger in the communication sector is providing a positive buzz in the
early market. We also think that continued weakness in energy prices (Crude oil
has now declined $13.70 a barrel since the October high) is providing investors
with the incentive to buy transportation issues.
DOW
While the March Dow has been caught in a consolidation pattern for the last
month, we see the short term track in prices pointing upward. In fact, until the
March Dow reaches last week’s highs, we see little in the way of resistance.
Near term support comes in down at 10,552. It should also be noted that short
term technicals are in buy modes but the signals are middle of the range
signals.
S&P
The March S&P sits poised to make a run at the recent highs and should have
solid support at 1189.50. We suspect that the 1200 level will be taken out and
closed above before the end of the week, but we are not sure that the pulse up
will come until after the market has digested the Fed action on Tuesday
afternoon.
FOREIGN EXCHANGE
US DOLLAR
Basis the March Dollar Index, the market should see
fairly decent support down around 81.88. In the near term, US economic numbers
will be somewhat negative to the Dollar, while weaker energy prices and higher
US equity prices will probably provide countervailing support to the Dollar. In
the Treasury market we are seeing anticipation of intervention in favor of the
Dollar but that sentiment has been present for most of the last two weeks. We
suspect that the Dollar will generally be supported by the FOMC meeting
expectation, as another ratcheting up of the interest rate differential will be
beneficial to the Dollar. We also think that the longer the Dollar avoids
resuming the long held downward track, the more likely it will be to see short
covering. While it is too early to be concerned with year end short covering, a
move above last Friday’s high of 83.33 could simulate that type of thinking.
Therefore, the short term trend is up but we are not sure that the long term
trend has fully shifted yet. In fact, any return to levels below 81.88 in the
March Dollar could quickly rekindle bear sentiment toward the Dollar.
EURO
While the Euro remains vulnerable on the charts,
there is a moderate amount of support around 133. However, short term technicals
are in sell modes and another trade below 132.06 could easily start another wave
of profit taking selling. Reports overnight that Italian October Industrial
Production declined by.5% reiterates that the US economy is stronger than the
Euro zone economy and that development will be given added importance on Tuesday
when there is expected to be another expansion in the interest rate differential
equation in favor of the Dollar. Therefore, the bias is down but we are not sure
the market will actually push the Euro over the cliff early this week, unless
the retail sales reading from the US manages a much stronger than expected
reading this morning.
YEN
The Yen has come down significantly from the recent
highs and might be capable of consolidation around the 96.00 level. However,
short term technicals in the Yen are in sell modes and the Yen might need to
slide back toward 95.00 before it finds really solid support.
SWISS
We have to think that the Swiss is poised for a
retest of levels below 86.00 but those looking to get short might have to wait
for a bounce to 87.35 to get short.
BRITISH POUND
Minimal inflation readings of +0.1% could leave the
Pound vulnerable, as the market was recently factoring a hot inflation condition
into the Pound exchange rate. Short term technical indicators are in sell modes
and near term support isn’t seen until 189.71.
CANADIAN DOLLAR
For the near term, we suspect that the March
Canadian will find support at last week’s low of 80.93. While the market has
come down a long way from the recent highs, the short term technical indicators
are still in sell modes and that could mean that the Canadian at least attempts
to make a lower low in the Tuesday/Wednesday window.
METALS
OVERNIGHT
London Gold Fix $436.95 +$3.05 LME COPPER
STOCKS 55,325 metric tons -650 tons COMEX Gold stocks 5.579 ml +15,600 oz COMEX
SILVER stocks 103.4 ml Unchanged
GOLD
In order to whip up renewed positive sentiment
toward gold, the Dollar will have to manage a slide back below 82.00, as the 6
day bounce off the recent low is discouraging gold players from entering the
fray on the long side. With the net spec and fund long in gold rising by almost
7,000 contracts to stand at 213,000 contracts, it is clear that the market is
still significantly overbought but with the gold entering the US session this
morning $16 below the level where the COT report was measured, we suspect that
the net spec long has contracted to roughly 200,000 contracts. Dampening
sentiment toward gold were comments from Shanghai overnight, that suggested
Chinese investors are looking beyond gold and other primary investments to
international equity investments and with Chinese investors also providing
capital for mine expansion, the net effect of Chinese diversification could
eventually be negative for gold and other metals prices.
SILVER
Despite carrying short term technical sell signals
and a net spec and fund long of 100,000 contracts in the last COT report we see
the recent consolidation low of $6.64 in March silver as solid support. However,
the net spec long reading in silver is dramatically overstated, given that
silver comes into the week nearly $1.00 below the level where the COT report was
measured. In short, we see the $6.75 level as an extremely critical pivot point
zone for silver but with short term techs negative and gold lacking a directly
bullishly short term track, we have to be concerned about a retest of $6.75.
PLATINUM
We are somewhat impressed by the platinum price
action since the low last week, as prices have managed to bounce $25 and have
done so against ongoing technical sell signals and minimal help from gold or
silver. The January platinum market has a critical pivot point up at $850 and
near term support at $829. A light upward bias is seen but the market is
basically caught in huge consolidation range that is bound by $820 and $880.
COPPER
We are a little surprised that copper has continued
to recover off the low from last week, as the macro economic outlook isn’t that
stellar and the market is still being limited by the rather sizeable increase in
the weekly Shanghai copper stocks reading from last Friday. The copper market is
also bucking forecasts of rising Australian copper production. However, Chinese
copper prices overnight were higher and the short term technical condition is
pointing to more gains ahead.
CRUDE COMPLEX
After early gains off news that OPEC planed to
cut production by 1 million barrels per day to get back to the quota target of
27 mbd, THE energy market went into a tailspin Friday giving back a significant
amount of gains registered earlier in the week. Heavy profit taking ensued when
Iraq announced that its Kirkuk pipeline was back in service. Therefore, OPEC’s 1
mbd production cut will be offset by at least a 450,000 barrel per day
production increase from Iraq.
NATURAL GAS
Although temperatures are expected to turn much
colder this week, the natural gas market will need to see a steady increase in
draws on nat gas stocks from week to week in order to erode supplies that sit
227 bcf above year ago levels. Last week’s larger than expected stock decline
may be the start of a more significant stock decline trend. However, weather
will play a key roll and there will need to be an extended below normal
temperature period in order to erode supplies.