Futures Point To A Flat Open
12/28/2004
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INTEREST RATES
While the Treasury market appeared to dip off the
fear of a rotation away from Dollar based investments; the washout was also
fostered by the prospect of an improvement in the macro economic condition. In
addition to early gains in US equity market on Monday morning, the Treasury
trade was also confronted with a massive follow through break in energy prices
and that decline comes right into the brunt of the North American winter demand
period. We also suspect that Treasuries will be presented with more pressure
today off the Consumer Confidence reading, but we are not sure that the reading
will be that clear cut.
STOCK INDICES
The stock market deserved the initial run
yesterday morning and probably reached a significant overdone short term
positioning around the highs. Therefore, the profit taking setback noted in the
afternoon action yesterday was not surprising and in retrospect was probably
necessary, just to balance the overbought technical condition. However, we doubt
that the energy complex will be able to provide a continuous flow of support to
equity prices and it is also possible that further declines in the US Dollar
will continue to undermine the bull case.
DOW
The March Dow fell back to critical chart support of 10,800 but that level
seemed repel the sellers overnight. In fact, unless the US Consumer Confidence
report is weaker than expected, we would expect the Dow to use the 10,800 level
as a solid base of support. Perhaps the biggest threat to the bull camp is the
concern that funds will lose interest and bank profits ahead of year-end. On the
other hand, with four full trading sessions left before year end, it is probably
premature to think that traders will give up on the recent up pattern so far
ahead of the actual year-end. Near term upside resistance and targeting is seen
at 10,839.
S&P
Unlike the Dow, the March S&P seemed to violate support on the charts and will
probably exhibit more volatility in the coming sessions. However as mentioned
before, the stock market continues to see more bullish developments than
negative developments and the bias should remain bullish as the March S&P avoids
a trade back below 1207.30. A more significant critical point is seen down at
1206.50 and those implementing fresh long plays should probably use stops below
that level.
FOREIGN EXCHANGE
US DOLLAR
The Dollar fell apart on Monday and so far the
Central banks have made almost no comment. While the Dollar failed at a series
of critical chart support levels and that market hasn’t paid much attention to
the macro economic condition, we have to think that it is becoming increasingly
difficult to attack the Dollar. After all, the trade was certainly attacking the
Dollar aggressively in the October and November time frame because of the
perceived threat presented to the US economy by ultra high oil prices. With
current crude oil prices falling almost $12.50 a barrel below the November highs
and the extreme winter pricing threat moderated, we have to think that one of
the world’s fastest economies is being presented with the prospect of
accelerating growth. However, the down trend pattern is entrenched and it would
not seem like the Central Banks are poised to respond and that leaves the Dollar
vulnerable to even more losses ahead. In fact, if it were not for the steadily
improving macro economic outlook being presented by the gains in the US equity
market, we suspect that the Dollar would be pounding away at new lows. The trend
is down until some major headline development alters the existing bear
dominance.
EURO
The Euro remains within close proximity to the highs
despite the fact that Italian Business Confidence declined in the month of
December. As suggested in the Dollar comment, the market is currently not giving
the macro economic condition that much consideration and therefore the trend in
the Euro remains up, despite the fact that the fundamentals don’t support a
resounding rally in the Euro. Critical support in the March Euro comes in at
136.28 and near term resistance comes in at 136.50.
YEN
The Yen managed to hold most of the recent upward
pulse, but once again the economic numbers from Japan would seem to undermine
the bull case. While the November Industrial output readings from the METI were
positive, the Japanese government expects the December readings to decline by
almost 1%. However, the Japanese economy is very dependant on imported oil and
the continued weakness in energy prices might actually give the Yen a leg up on
the European currency. While the short term trend might be pointing upward, we
have to think that the BOJ is against more gains and that an approach of the
98.00 level could bring on increasingly more aggressive intervention dialogue.
SWISS
The Swiss continues to sit just below the November
highs but will probably need a new low in the Dollar to re-test contract highs.
Unfortunately the March Swiss has little support until 88.38 but the bias
remains up.
BRITISH POUND
While the short term favor goes to the bull camp, we
can’t help but look at the big picture fundamentals in the Pound and conclude
that the Pound is making a massive toping formation on the charts. However in
the near term, one can’t rule out a return to the 194 level.
CANADIAN DOLLAR
Technically a couple closes above 82.00 will really
begin to weaken bearish resolve in the March Canadian. In fact, today might be
an extremely critical pivot point for the Canadian, and since the US Dollar
wasn’t effectively lifted by the upgrade in US holiday sales, and the run in the
US equity market, it is possible that the Canadian has gotten beyond the
vulnerable status seen for most of December!
METALS
OVERNIGHT
London Gold Fix $442.40 Closed LME COPPER
STOCKS 51,125 metric tons n.a. Closed COMEX Gold stocks 5.59 ml -53,839 oz COMEX
SILVER stocks 104.1 ml +101,065 oz
GOLD
With the big declines in the Dollar yesterday, the
gold buyers were stirred into action and that resulted in a move to the highest
level since the massive December 8th washout. However, the COT report showed the
small spec and fund long to be 172,000 contracts, or an increase of 5,700 on the
week. With the gold market coming into the session this morning $3 above the
level where the COT report was measured, we doubt that the long position is
markedly above the initial measurement.
SILVER
Like gold, the silver market also managed an upside
breakout but after the impressive run, prices have fallen back to even numbered
$7.00 support. Also like gold, the silver market has a moderately large small
spec and fund long of 65,000 contracts but that figure is at least partially
understated due to the fact that silver comes into the session 13 cents above
the level where the COT report was measured. Critical support in March silver
comes in at $7.00 and near term resistance and targeting for the bull camp is
seen at the December 8th pivot point of $714.5.
PLATINUM
The platinum market certainly exploded yesterday and
did so off favorable interest from the Pacific Rim and possibly because of the
positive initial lift from the US stock market. Certainly the initial gold gains
and the decline in the Dollar added to the speculative fervor but with the
Japanese metals exchange now closed until January 3rd, the US market will have
to generate its own bullish buzz to add to the recent gains. Critical support is
seen at $865 and resistance is pegged at $875.
COPPER
With Chinese copper prices backing off and banking
profits on the recent run up and the London market closed, the US market would
seem to be a little vulnerable. In fact, with the spike up and failure at the
145 level we suspect that the longs are questioning their positions. On the
other hand, with significantly lower energy prices and the prospect of a
favorable US consumer confidence reading this morning, it is possible that
improved macro economic sentiment will provide the market with an ongoing
underpin.
CRUDE COMPLEX
Apparently the market is suddenly willing to
throw in the towel on a winter fuel shortage and the majority of that bearish
confidence comes off the idea that mild weather in the 5th through 9th day of
the winter is going to be mild. The trade rushed to washout speculative
sentiment in nearby heating oil, with what many are now suggesting is the
biggest single day’s decline since 1990. While we can understand the market
extracting part of the excessive premium interjected into prices over the last 6
months, we think conditions are a long way away from justifying a total leveling
out of the geopolitical risk premium.
NATURAL GAS
The aggressive liquidation Monday in the regular
energy complex was inspired by the deflation of winter heating fears and
therefore the natural gas market felt the full brunt of the washout. As we
suggested Monday, we were fearful that the March contract would not find support
until $6.50. However, given the combination of a massive year end speculative
washout and the warm weather trend, the market fell all the way back below the
summer consolidation lows.