Futures Point To A Higher Open
INTEREST RATES
The Treasury market showed some surprising
weakness yesterday in the wake of a minimal increase in an old US number.
However, psychologically we can understand seeing some profit taking in the wake
of an upgrade in the GDP number as that is an all encompassing reading that
usually attracts a lot of attention. We also suspect that firm equity prices and
sharply declining energy prices helped make the GDP revision look even better.
STOCK INDICES
While the market didn’t show strength initially
on Wednesday the market eventually managed to forge impressive gains and did so
during a session that could easily have been a listless, low volume day.
However, the combination of a slight upward revision in the US GDP, sharply
lower energy prices and ongoing upbeat talk about electronic sales simply seemed
to pull in the buyers. Overnight European stocks were apparently being led
higher by the energy stock sector, which is surprising considering the massive
slide in energy prices yesterday, in the wake of weekly US inventory data.
DOW
The March Dow continues to lead the broad market and with the sharp decline in
energy prices, the big cap stocks should see lower costs and potentially better
economic conditions for their customers. While oil prices could come bounding
back, even temporary respite in a heavy demand period is a benefit. Near term
upside targeting is seen at 10,910 and near term support is pegged at 10,806.
S&P
The S&P continues to exhibit much more volatility than the Dow and while that
shouldn’t discourage the market from attempting more gains, that could
eventually set longs up for greater adversity. In the end, we suspect a run at
the Wednesday high, but we get the sense that the market needs conclusive help
from the early US numbers to manage another new high. Critical pivot point
support in the March S&P comes in at 1209.10 and then again down at 1207.20. Top
of the channel in the March S&P comes in at 1215.50.
FOREIGN EXCHANGE
US DOLLAR
The Dollar looks to end the week in a disappointing posture. Even after more
confirmation that the US economy is head and shoulders above the competition and
seeing the potential for fiscal restraint, the Dollar has remained weak. Some
suggest that the deterioration of conditions in Iraq is applying pressure to the
Dollar; while others suggest that the Dollar is simply the victim of
international reallocation. In other words, the market still isn’t paying that
much attention to scheduled reports and instead is simply adjusting to a world
wide rebalancing of investments. In fact, a number of large brokerage firms
continue to expect significant declines in the Dollar in the coming 12 months,
but some forecasters are suggesting that the Dollar declines will take on a much
less aggressive personality. We continue to think that the US economy is
gathering momentum and that a stronger economy should begin to improve the US
deficit condition and we also think that the low Dollar is beginning to improve
the trade deficit. However, we can understand the need to push the Dollar down
but the market will have to manage a trade below key support levels of 81.68 and
81.49 today in order to accentuate the near term bear case. Overnight European
and UK economic readings were soft enough, that it is possible that the Dollar
will manage to hold initial support today. We will continue to hold the
bottoming view until the market proves us wrong, with a Dollar close below
81.39! Hold March Dollar Index 83 calls.
EURO
Overnight the Euro zone posted a rather anemic French Business Confidence
reading (104 versus a prior 105 reading) and also saw mostly muted inflation
readings in Italy. However, certain portions of Germany continue to see
moderately hot inflation readings and that could signal a problem for ECB policy
ahead. In any regard, the Euro seems to have enough steam to muster a run back
to the highs and since it managed to erase the bad technical action from early
in the week, and it is the holidays, we doubt that one can expect quick
intervention in the face of a new high. In other words, the bulls might be able
to control longer than would have been expected under normal trading conditions.
We doubt that the early US numbers will deter the near term higher track in the
Euro. Continue to hold multiple long puts in the Euro; realize that we bought
puts, so we could weather this kind of adversity!
YEN
The yen continues to post a pattern of higher lows and would seem to be poised
to re-test the consolidation high up at 96.97. A holiday in Japan today might
make intervention less likely and for that reason the bulls appear to have an
edge today.
SWISS
With short term technical pointing upward, we suspect that minor gains will be
posted. Near term resistance comes in at 87.65 and then again up at 88.00. The
bulls have an edge but we won’t alter our bearish opinion until the March Swiss
manages a close above 88.60.
BRITISH POUND
Apparently the market is getting over the concerns recently floated on the UK
deficit. However, the Pound was knocked down to consolidation support of 190 and
we don’t see the information in the near term, to manage a push in the Pound
below chart support. However, with the 3rd quarter UK GDP rather anemic at +0.5%
and the current account deficit rising to 8.8 billion Pounds versus 5.8 billion,
one could easily lump the Pound into the same fundamental category as the
Dollar. Therefore, the Pound might bounce, but it shouldn’t be poised for a big
sustained rally.
CANADIAN DOLLAR
After an extremely negative chart trade yesterday, the Canadian has fought back
to at least balance the focus. However, the Canadian will have to prove that it
can avoid a slide down to an even lower trading range. We would become an
interested selling on a rally back to 81.48, using a stop up at 82.10 and an obj
of 79.11.
METALS
OVERNIGHT
London Gold Fix $442.40 -$.30 LME COPPER
STOCKS 51,125 metric tons -875 tons COMEX Gold stocks 5.644 ml +59,985 oz COMEX
SILVER stocks 104.0 ml Unchanged
GOLD
With renewed Dollar weakness we suspect that buyers in gold will be inspired
again. However, in order to really spark renewed buying interest, the Dollar
might have to fall below 81.68 and possibly even 81.49. Chinese gold prices were
higher overnight with Dow Jones news suggesting that the buying was the result
of physical interest and that is somewhat a fresh wrinkle for the bull camp.
SILVER
The silver chart continues to an upward tilt with the market favoring the upper
quarter of the December consolidation pattern. So far the consolidation pattern
has produced a series of higher lows but hasn’t managed to produce higher highs.
We suspect that gold will lend a little positive support this morning and that
silver might be able to test the top of the consolidation up at $6.97.
PLATINUM
The PGM metals markets have certainly been made aware of the fact that the
platinum and palladium spread is at an extreme level and that might be
contributing to the lack of upside momentum in platinum. In fact, the market
seems to have lost almost all momentum and has what appears to be a quadruple
top pattern at $843. However, since gold prospects look slightly better today,
we suspect that platinum will see some indirect support from outside markets.
COPPER
After a run to new highs the copper market appeared to aggressively bank profits
on Wednesday afternoon. Overnight Chinese copper prices finished sharply lower,
in a move that appears to be profit taking. As we suggested Tuesday, we expected
copper to make a new high but we also expected the market to fall back from
those new highs quickly.
CRUDE COMPLEX
The energy complex reeled under the weight of a
surprise build in API crude oil stocks. However, in retrospect the inventory
readings were in no way as bearish as the trade made them out to be initially,
as distillate stocks at the API declined and the refinery operating rates
declined. However, it seems that the initial release of the inventory data by
some outlets showed a massive 5.2 million barrel build in crude oil stocks at
the API, but that figure was eventually revised downward, to a build of only
2.82 million barrels.
NATURAL GAS
While the natural gas chart formation is a little negative, we suspect that the
decline off the mid December high has left short term technical indicators a
little oversold. We also suspect that cold weather overnight and in the coming
24 hours is going to discourage some sellers. However, the weekly inventory
report today in natural gas is probably assumed to be a little more bearish, in
the wake of the regular energy complex information.