Finding A Trade In A Flat Market

• August 15, 2003
• Brice Wightman

INTEREST
RATES

OVERNIGHT
CHANGE to   4:15 AM :BONDS +18
The bond market did manage to recoil off the surprisingly lower levels posted
during the action Thursday. We suspect that the Thursday low will become some
sort of support point for the market over the coming sessions. In the FOMC
meeting minutes (the June meeting) released yesterday, the Fed expected to see
sub par growth for an extended period of time and that has to discourage some
sellers from attacking bonds and notes.

STOCK
INDICES

OVERNIGHT
CHANGE to  4:15 AM:S&P+390 DOW
+17 NIKKEI -10 FTSE +25 While the NYSE has indicated that they will open
for normal trading today, there are reports of smoke coming out of the building
and fire trucks on the street outside of the exchange. Therefore, we have to
think that the opening could be delayed. Just as the blackout looks to benefit
the bond market, we have to think that the power failure is a slight negative to
the stock market.

FOREIGN
EXCHANGE

Dollar:
Without actual US Dollar Index overnight action reported (due to the power
failure) one can only speculate that the Dollar is slightly lower off the slight
rise in other currencies. While the power failure issue might be a reason to
discount the Dollar and discount the recovery in the US, there should be enough
favorable economic reports to be released today to countervail negative
attitudes toward the Dollar. Seeing the areas affected back to normal today
could actually end up being a supportive issue to the Dollar as that shows
readiness of civil authorities. As it stands, the Dollar is a on a pattern of
rises this week and in looking back at the information this week, it is really
clear that the US economy is recovering at a faster pace than the Euro zone. In
fact, if one can’t be sure that the US economy is recovering, then one
certainly can’t begin to think that the Euro zone is recovering. Therefore, an
upward bias continues in but the market should really have significant
resistance up around this week’s high of 96.97.

EURO:
The power failure in the US, simply saves the Euro from direct down action. With
US numbers expected to show strength today, one might expect to see a return to
support of 112.10. We suspect that ranges in the Euro will be rather tight
today, given the lack of European statistics but with the US report slate full,
expect most of the range to be forged in the first couple hours of trade in the
wake of the US figures.

YEN:
It would seem that the events of the last 24 hours have given the Yen support.
In order to reverse the recent downward thrust, the Yen will have to manage a
climb back above 84.28. Traders should be looking for a rally to sell in the
Yen.

SWISS:
Traders should be looking to sell the Swiss on any rally today to 73.36. Current
conditions don’t seem to foster much flight to quality buying and with the
Euro zone economic numbers this week coming in soft, the Swiss simply has a
downward bias.

 

POUND:
With the Pound close to technical failure on the charts, one has to fear a slide
to the mid July consolidation down around 159.28 and 158.00. CANADIAN DOLLAR: A
trade below 71.51 today, might open up a stop loss selling binge in the
Canadian. However, if it appears that the Canadian is going to manage some early
gains, it is possible that we see another sharp bounce off a critical up trend
channel support line that has formed off the July lows.

METALS

OVERNIGHT
CHANGE to 4:15 AM:GLD-2.30 ,SLV-2.5  ,PLAT+3.00,
CP +40  London Gold Fix $363.30 +$1.05 LME Copper Warehouse stks 630,550
tns +6,300 tns Comex Gold stks 2.74 ml oz +172 oz Comex Silver stks 104.9 ml
Unchanged OVERNIGHT: Gold rallied off suspected terrorism but eventually fell
back.

GOLD:
Seeing the gold market rise off the initial idea that the US blackout was
related to terrorism suggests that the market is sensitive to flight to quality
issues. With the Dollar a little weaker this morning and the gold market fresh
off a little overnight rise, we have to think that the bulls have slight control
over prices. Chinese spot gold prices also rallied and then setback off the US
power problems but the close in that market was uninspiring.

SILVER:
As expected, the silver market didn’t make as much of an upside pulse, off the
power issues in the US and that could be because of the slightly negative macro
economic implications that are certain to arise from the blackout. However,
while the bias remains up, the COT report in silver (released after the close)
should serve to remind the trade of the ongoing moderately overbought condition
of the market. Critical pivot point support in the December silver comes in at
$501.6 but a trade back above $5.09 could spark a wave of stop loss buying from
recent sellers.

PLATINUM:
Given the disjointed consolidation pattern this week in platinum, we would think
the metal is vulnerable to a washout, or at least a profit taking. With prices
hovering in record territory, we simply can’t accept the risk and reward of
being long at current levels. There is an old gap in October platinum down at
$686 to $684.5 and that could be a target in the trade today.  

Chinese
copper stocks rose a massive 17,487 tons to 109,913 tons and that combines with
significant builds in LME copper stocks this week for a bearish supply focus! In
other words, the rumors last week that LME stocks were set to build, has
certainly taken COPPER: place. While the market doesn’t seem to be paying too
much attention to the rise in supply, when one combines that news with the idea
that Escondida January through July production rose by 39%, the core of the bull
market is deteriorating. It should also be noted that Chinese copper production
in July rose 9% and that is another source of rising supply.

CRUDE
COMPLEX

OVERNIGHT
CHG to   4:15 AM  
:CRUDE +35  ,HEAT+132
,UNGA+237  The energy complex was lower for most of the session Thursday,
before a late rally unfolded. We are not sure that the blackout was responsible
for the rally as the move was already well in motion at the time of the problem.

NATURAL
GAS

Supposedly,
the natural gas market broke aggressively off an 82 bcf injection, which was
only slightly above expectations. Certainly seeing the annual deficit narrow
(the deficit does remain tight at 432 bcf below year ago levels) is a negative
and with some weather forecasters taking down the duration of the end of August
heat, the break that unfolded Thursday was partially deserved.