Futures Forecasting Lower Open

July 24, 2002
Greg Che

The futures are forecasting a lower open
Wednesday, with additional follow through to the downside from Tuesday and
weakness in the European markets.

Wednesday’s Pre-Opening Outlook

INTEREST RATES

OVERNIGHT
CHANGE to

4:15 AM: BONDS +17 The capitulation in equities is now underway in earnest and that
simply feeds the bonds sharply higher. Now that the 107-02 objective is at hand,
it would seem that even higher objectives are possible. In fact, we see a major
blow off rally in bonds into the next 36 hours of trade.

STOCK
INDICES

OVERNIGHT
CHANGE to
4:15 AM:
S&P -1050;
NIKKEI -267; FTSE -101 Perhaps the best chance of a halt to the selling is that
investors simply become immune to declines on Wall Street and to the talking
heads. In reality, we are now seeing structural action in industrial commodity
markets that could mean another breakdown is taking place in the economy.
Significantly weaker copper, gold, silver and platinum prices suggest deflation
and recession are now being aggressively factored.

FOREIGN EXCHANGE

Dollar: The Dollar would
appear to be extremely vulnerable with the
US
equity market falling like a stone, the markets fully expecting the
US
to fall back into a recession and the
US
stuck in a worsening cycle of trade and budget deficits. We think it is time to
play for increased volatility instead of calling the near-term direction of the
Dollar. We have to think that intervention has provided some of the impetus
behind the rally of the last four sessions. After all, the economic conditions
in the
US
have worsened or the perception of the economy, in the minds of investors, has
worsened. In fact, the press is suggesting that the Fed is planning an emergency
meeting, and that shows the type of sentiment operating in the marketplace. Those
that bought Dollar Index calls on our suggestion should have banked profits
yesterday. Traders should now shift into a volatility play. Buy 2 August Dollar
Index 108 calls for 50 ticks and sell 1 Dollar Index futures at 106.75.

EURO: The
Euro is benefiting from the normal delay in economic reporting. While the US
economy is taking a broadside off recent numbers and expectations, the Euro
zone plods along with two-month-old reports, and as of yet, no concern toward
slowing. The correction back to long-term chart support should leave the Euro
poised to benefit from more travails in the
US
economy. Top of the channel in the September Euro is now 102.50.

YEN: Like
the Euro, the Yen had also pulled back to longer-term chart support and appears
poised to benefit from the
US
problems. The Yen benefits when conditions in the
US
become so severe that more long-term Japanese investments are pulled out of the

US.
Top of the uptrend channel in the Yen comes in at 87.40.

GOLD

The fund
and small spec long let go of long-held bull plays yesterday as the Dollar rise
was simply too much to withstand. After the massive equity market failures, gold
bulls expected to see some rotation into metals, but instead little was
forthcoming. From the headlines, one would think the current financial situation
is more than enough to provide flight-to-quality buying of gold, but in reality
money is simply not moving in that way.

CRUDE
COMPLEX

OVERNIGHT
CHG to 4:15 AM: CRUDE +44; HEAT+120; UNGA+168 The weekly API report showed
another massive decline in US crude inventories and that probably serves to
stave off potential selling interest being generated by the deflationary
environment. The fact that the gasoline stocks, distillates and refinery
operating rate all declined is made even more important by the jump in both
distillate and implied gasoline demand.

Today’s Program Numbers

Buy

Sell

Fair Value


2.50	-1.72	.83

Today’s Futures Pivots

S&P

Nasdaq

840.67

978.67

818.73

940.33

Pivot

806.87

Pivot

919.67

784.93

881.33

773.07

860.67

Futures Forecasting Lower Open

BUY THE FEAR, SELL THE GREED

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