Possible Profit-Taking Weighs On Open
INTEREST RATES
OVERNIGHT
CHANGE toÂ
4:15
AM
BONDS -6 — The bond bulls were lucky that
prices weren’t ransacked Thursday, as the stock market rally was accompanied by
4 of 5 economic reports coming out better than expected. Not only were the
numbers better than expected, some of them actually showed positive or improving
readings! The Philly Fed survey and the ongoing claims readings were especially
damaging to bull sentiment in bonds and that increases the chance of a major
roll over in the bond market. Furthermore, with talk on the NYSE floor
whispering about pension fund rotation, it is clear
that some interests are becoming confident enough to move out of defensive bond
holdings and into less risk adverse equity holdings.
STOCK INDICES
OVERNIGHT
CHANGE toÂ
AM
S&P -260, NIKKEI
+104, FTSE -21 –Â By a number of technical
measures, the breakout up Thursday was significant. Surprisingly, the gains in
the stock market this week also came with some supporting bullish fundamentals.
In addition to the impressive HP/COMPAQ earnings, the capital-spending
announcement from IBM begins to chip away at the idea that “no business” is
willing to make capital spending investments.
FOREIGN EXCHANGE
DOLLAR: The one way to describe the action in the Dollar this week is
disappointing. While some traders continue to suggest that the Dollar is being
held back by its war tilt, we have to think that the Dollar sellers in off the
weak economy argument, are really second guessing themselves. However, if the US
Dollar couldn’t rally in the face of
soaring
US equity prices and nearly a clean sweep of better than expected economic
numbers, there is something limiting the upside. The Dollar is certainly
confronted with significant overhead resistance on the charts and is certainly
posturing to attack
and that is evidently going to leave the Greenback in a slow gradual rally. On
the other hand, seeing a December Dollar Index trade back below 105.38 could
un-nerve recent longs and pressure the Dollar quickly down to 105.00.
EURO: The trade continues to see the French
economy carrying the Euro, while the German economy drags the Euro down. Many in
the trade think that the ECB should cut interest rates but it would seem that
the ECB is divided in it opinion and that no move will be made without further
cause. Certain ECB officials were out overnight defending their stance on
cutting rates and that is clear proof that no cut is likely soon. Therefore, the
Euro remains a little weak because the Dollar has shown some ability to rally.
However, the Dollar was not impressive and we have to think that the Euro
weakness will end and that the recent consolidation will support the Euro above
99.67.
YEN: The Press is reporting that the
Japanese budget includes much slower growth than was originally forecast for the
coming four months and that adds to the ratings downgrade early this week for
more pressure on the Yen. Near term targeting in the Yen is 81.30 but the
discovery of more scandals could send the December Yen down to 80.48 next week.
SWISS: It would not be a good thing
technically for the Swiss to fall below 67.95, as that would be a major failure.
As long as the Dollar is showing strength, the Swiss will drift down and as long
as the
stock market is strong the Swiss will encounter light selling.
POUND: The consolidation in the Pound is
clearly a result of the
economy possibly finding a base, or at least toning down the concerns toward a
double dip recession. Therefore, the Pound as an alternative to the Dollar, is
down graded a touch. We see no reason why the trade should attack the Pound and
with its steady economy and solid chart support around 157.50, liquidation
should be minimal.
CANADIAN: The Canadian has to move back
above 63.50 today or risk seeing some doubt come back into the bull camp. We
like the fact that the Canadian managed to rally in both up and down US Dollar
action this week. Trend is up but our gut is skeptical.
METALS
OVERNIGHT CHANGE to
4:15 AM
GLD
+0.90,
SLV +0.2, PLAT +4.10;
Gold Fix $318.20, -$.20; LME Copper
Warehouse stks 863,475 tons, +1,200
tons;Â Comex Gold stocks
1.99 ml, Unchanged; COMEX Silver stocks
107.5 ml oz, -1,018 oz; OVERNIGHT: Marginal gains in gold, a delayed reaction to
Japanese ratings cut
GOLD: While gold might have held up much
better than silver in the action Thursday, it continues to be very close to a
technical failure. As we have mentioned before, we think that a large portion of
the bull camp will hold tenaciously to positions, until one can clearly say that
the chance of war is reduced, or that the
economy is on the mend. Therefore, one might expect some liquidation but not a
wholesale washout.
SILVER: It goes without saying that the
silver washout Thursday was surprising, especially considering that the gold
showed almost no weakness at all. We attribute the wash in silver to liquidation
by longs that were into silver as a hedge against the economy. In other words,
silver has partially undergone the necessary rotation out of flight to quality,
so that it can become a tight supply driven commodity.
PLATINUM: We are really surprised in the
poor performance of an apparent bull market. With the stock market soaring and
optimism on the economy improving we would have thought that platinum would have
managed to recover. Maybe some in the trade are concerned about
Norilsk (a large Russian producer) firming up a deal
with a US company as that could rebuild the Russian companies connection to US
auto accounts. In other words, maybe Russian supplies have a chance of flowing
again. We simply doubt that the Russian outlets have the supply and that the
tightness is not a function of red tape or government involvement.
Support seen down at $580.
COPPER: We have to think that copper will in
general continue to climb, especially if the equity market pattern continues to
foster recovery views. While December copper might slide back to support of
73.30, we would expect that level to serve as a launching point for a rise back
up into the 75 to 80 cent trading range. If you think daily charts are
overbought, flip to a weekly or monthly chart and get a different perspective on
how cheap copper prices still are.
CRUDE COMPLEX
OVERNIGHT
CHG to 4:15 AM: CRUDE -4,
HEAT -23, UNGA
-17 –Â The energy complex continued to claw its way higher off a combination of
OPEC compliance wrangling, cold US temps and residual war talk from the US.
During the session,
and
traded barbs over what type of quota level
might come back on line with, if the UN sanctions were removed.
NATURAL GAS
The fact
that the market rallied into a 1 bcf draw in
inventories is proof of the bullish bias in place. With the January contract
poised within striking distance of the October highs and the market factoring
cold weather, strength in the regular energy complex and persistent fears of
war, energy prices should remain firm despite a temporarily overbought
condition.