Futures Point To A Flat Open
1/24/2005
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INTEREST RATES
The Treasury market comes into the new week with
prices poised just below the recent highs. From the economic data last week, the
weakness in the equity market and the strength in oil prices, one can easily
cede control of the Treasury market to the bull camp. While some traders
discounted the importance of the University of Michigan sentiment readings last
Friday, it almost seems like the track of US numbers is mostly contractionary.
STOCK INDICES
While the market would seem to be poised to forge
a higher opening trade today, we would not read too much bullishness into that
development. In fact, with the Wall Street Journal reporting this morning that
the influx of funds into mutual funds has left the market short of buying fuel,
and with the stock market off to a very bad start to 2005, we have to leave the
trend in the hands of the bear camp. The market doesn’t even appear to be
capable of benefiting from favorable earnings reports, as was clearly evident
last Friday morning.
DOW
While the March Dow has managed to respect last Fridays low in the early going
today and some players are attempting to play up the potential for a higher
opening, we see little change from the bearish setup that controlled prices last
week. Therefore, traders should expect more declines ahead, with the March Dow
seeing little support until 10,387. Our pick for an ultimate low now slides down
to 10,339.
S&P
A big range down move last Friday failed to show any rejection of the selling
interest and this morning prices are only slightly above the lows posted last
week. We continue to look for a big range down washout, before calling for an
end of the selling pattern. Unfortunately the S&P isn’t being lifted by
favorable earnings and with the net spec and fund long at 54,000 contracts in
the last COT report, it is clear that the market isn’t totally liquidated yet!
Near term downside targeting is now 1165, with the 1171 level basis the March
S&P seen as extremely thin support.
FOREIGN EXCHANGE
US DOLLAR
Some traders have suggested that the recent weakness
in the Dollar has come off rumors that US Fed Chairman Greenspan is slightly
less concerned about inflation than other members of the Fed. We suspect that
the Dollar has come under recent pressure because US economic numbers have
fallen out of bed and that energy prices appear to be on the rise again. Adding
in another major negative into the equation is the fact that the Iraqi election
looms ahead and the market is fearful of a sharp rise in US military casualties.
We also think that the failure to carry off the election and in the process
create a definable exit strategy could leave the Dollar under additional selling
pressure. In short, the majority of the information for the Dollar is either
negative or is expected to be bearish in the near term. Near term downside
targeting in the March Dollar Index comes in at 82.92 but a slide all the way
down to 82.05 would not be surprising, if the track of the US numbers continues
to be disappointing and the political backlash from Iraq intensifies.
EURO
While the pattern of lower highs continues in the
Euro, the action overnight is pretty impressive and may suggest an extension of
buying. The ECB dialogue overnight on the Euro zone economy partially undermines
the upward track in the Euro, with Issing suggesting that he is seeing nothing
new in the Euro zone numbers. In fact, Issing also added that a “very weak”
labor market is keeping wages down in the Euro zone and that is a statement that
should discourage Euro buyers. Recently the Euro zone numbers have been
disappointing and have shown little acceleration. However, the currency markets
are not really paying too much attention to the numbers as they seem to be
without a key focus. Near term resistance is seen at 131.03 and we really don’t
see the Euro rising above that level early in the week.
YEN
The Yen seems to have lost the bullish impetus seen
early last week and with the US economic outlook slack and general concern seen
toward global auto sales, we suspect that the Yen is moderately overbought and
vulnerable to near term declines. Near term targeting in the March Yen is 97.28.
SWISS
Like the Euro, the Swiss has certainly managed an
impressive overnight reversal, but we also see heavy overhead resistance up at
85.10. The slope of the recent down trend pattern in the Swiss suggests that the
market might bounce in the short term, but that the overall trend remains down.
BRITISH POUND
The BOE suggested overnight that declines in home
prices might not slow down spending and that is a positive for a currency that
has recently had a mostly negative fundamental track. Significant resistance is
seen up at 187.90 and near term support is seen at 187.03.
CANADIAN DOLLAR
We suspect that the path of least resistance in the
Canadian is pointing upward. Near term upside targeting comes in at 82.37 but
the Canadian needs to hold above 81.93 to keep the technicals in a bullish
posture.
METALS
OVERNIGHT
London Gold Fix $427.60 +$4.30 LME COPPER
STOCKS 43,525 metric tons +50 tons COMEX Gold stocks 5.936 ml +2,122 oz COMEX
SILVER stocks 102.3 ml Unchanged
GOLD
With the US Dollar nearly 100 points below the highs
from last week, it is clear that some currency buying was supporting gold
overnight. Asian traders indicated that some physical buying was also present in
the action overnight and that is a similar pattern to last week when April gold
managed a rise above $430. The weekly COT report showed the small spec and fund
long to be 102,000 contracts, which is a decline of slightly less than 6,000
contracts.
SILVER
The silver market has already managed an upside
breakout on the charts and might be headed to the late December high of $7.09.
The weekly COT report showed a net spec and fund long of 56,000 contracts and
that is a reduction in the net long of roughly 600 contracts. Near term critical
pivot point support in March silver comes in at $6.80 today and we suspect that
the near term path of least resistance is pointing up, mostly because of the
strong show of interest attributed to fund buying late last week.
PLATINUM
Not to be outdone by the action in silver, the
platinum market sits poised just below the recent highs, even though a key
platinum producer announced the resumption of operations at a key PGM facility.
Near term resistance is $870 and then again up at $875. While the trend appears
to be pointing up in platinum, we think the risk and reward is very
unattractive.
COPPER
After last Friday’s Shanghai copper stocks decline
and the residual strength in Chinese copper prices overnight, we suspect that
March copper will attempt to retest the contract highs this week. Even in the
face of rather slack US economic readings and a choppy to weak US equity market,
the copper seems undeterred. Apparently supplies in Asia remain tight enough for
copper prices to be propelled higher by merely consistent physical buying.
CRUDE COMPLEX
The energy complex managed an impressive rally
last Friday and in our opinion the market reaction was really an overreaction
when one undertakes an analysis of the information. For instance, some traders
suggested that the rally was sparked by slightly colder temperatures for the
weekend in the Eastern US, but the temps weren’t significantly below normal and
were not expected to remain entrenched. Some traders even suggested that a “down
grade” in the magnitude of recent winter stock rebuilding projection sparked the
rally.
NATURAL GAS
The weekly natural gas inventory report showed a 110
bcf draw, but apparently the natural gas market was lifted by the report or by
the strength in the regular energy complex. While Eastern US temps declined from
initial forecasts, it would not seem like the temps were so cold that the bull
camp will be able to keep prices firm early this week. On the other hand, seeing
the regular energy complex firm, into the Iraqi elections and the next OPEC
meeting, might discourage fresh shorts in the natural gas market.