Copper Glitters

January 18, 2001
Marc Dupee

Mixed economic reports resulted in a shimmering day in
the Comex copper pit. The session began bullishly on a better-than-expected
housing report, and then got additional support after the Philadelphia Fed
Research Department issued one of the worst monthly drops in manufacturing since
this regional economic activity gauge began.

Reports this week of a slowing
industrial base–with contained inflationary pressures–clear the way for the
Fed to move more aggressively to cut interest rates and stimulate the economy at
its January 31-31 meeting. Lower interest rates would stimulate the
economy–especially the interest-sensitive construction sector–and stimulate
demand for copper, a base metal used extensively in building and industry.

March copper
(
HGH1 |
Quote |
Chart |
News |
PowerRating) stair-stepped,
rallied 4% out of Slim Jim-like setups to add 3.40 to 86.15. Take note that
today’s high coincides with a recent 20-day high, in essence, setting this
contract up for a Turtle Soup Plus One sell reversal.

Silver
(
SIH1 |
Quote |
Chart |
News |
PowerRating), from the Momentum-5
List, rallied for a fifth consecutive day for a gain of 8.0 to 482.5, nearly equaling
a two-month high. Similar to copper, the price action in silver leaves the metal
vulnerable to a reversal as the contract has completed a low-level cup. Watch
for a reversal below the 4.84 level.

The economic reports also sparked a rally in debt
futures. T-bond futures
(
USH1 |
Quote |
Chart |
News |
PowerRating) rallied
on an unusually weak Philadelphia Fed. In Carolyn Boroden’s Futures
Perspectives, she identified two key clusters that capped the up-side in this
market. The upper of the two levels was the 104 19/32 to 22/32 area. March
bonds have declined as many as nine ticks off this level and then returned to
close above the 22/32 upper Boroden-band resistance, implying additional upside
here.

Ten-year note futures
(
TYH1 |
Quote |
Chart |
News |
PowerRating) also
rallied, adding 16/32 to 105 17/32.

The Fed will not get national confirmation of the local Philadelphia Fed’s
report until the day of its Jan. 30-31 meeting. The National
Association of Purchasing Managers (NAPM) survey–the national equivalent to
Philly–will not be released to the public until the day after the meeting, but
the Fed will surely get early wind of the report. Tony Crescenzi pointed out on TradersWire’s BondWire,
that a super-weak NAPM would heighten the chance that the Fed will cut rates at the
meeting 50 basis points. A 50-basis-point cut within one month would be the
first in 14 years and unprecedented under the Greenspan regime. The January
federal funds futures

(
FFG1 |
Quote |
Chart |
News |
PowerRating), the most accurate barometer of likely Fed short-term
interest rate moves, is trading just off the session highs, pricing
in a 94% chance of a 50 basis point cut for the January
meeting.

Stock index futures got lift-off from above-plan results from IBM and
more than doubled, but below-views earnings from the number-two chip company
Applied Micro Devices
(
AMD |
Quote |
Chart |
News |
PowerRating). Two days of rally in the semiconductor index
(
SOX |
Quote |
Chart |
News |
PowerRating)
has taken this crucial tech sector up 16%. Stock index futures have been
implying they could make a larger-than-normal move as Multiple Days Low
Volatility readings in Spooz and Naz futures showed the contracts were ready
to revert back to their mean volatility. Note here that four Market
Bias Indicators Page, a critical mass today is a signal that could carry
over Friday’s market and lead to a down day. Microsoft
(
MSFT |
Quote |
Chart |
News |
PowerRating) met views
after today’s close.

The American Petroleum Institute’s weekly report came one day late–Wednesday
after the close. The API came in basically as expected, except for the
distillates portion of the report which saw an surprise draw down. That spurred February
heating oil
(
HOG1 |
Quote |
Chart |
News |
PowerRating) to rally and make good on its
Turtle Soup Plus One Buy
setup.

Cocoa
(
CCH1 |
Quote |
Chart |
News |
PowerRating), the Momentum-5
List leader, surged in early trading to add as many as 65 on the day before
pulling back for a net gain of 6 to 996. See recent days Futures Markets Recaps
for the fundamental backdrop driving cocoa.

Copper Glitters

BUY THE FEAR, SELL THE GREED

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