Futures Point To A Flat Open

December 23, 2003
TradingMarkets Editors

INTEREST RATES

12/23 OVERNIGHT CHANGE to 04:23 AM:BONDS+2 While
the bonds fell back off the highs Monday, conditions would not seem ripe for a
persistent slide lower. In fact, without the equity market rise yesterday, the
bonds probably could have mounted a run toward the 112-00 level. However, the
Treasuries will have to contend with an active economic report slate today, with
the University of Michigan and Personal Spending numbers offering up the most
benefit to the bear camp, while the GDP number isnâ€™t expected to provide much in
the way of fresh information.

STOCK INDICES

12/23 OVRNIGHT CHG to 04:23 AM:S&P-150, DOW-21,
NIKKEI Closed, FTSE+2

INTEREST RATES

STOCK INDICES

12/23 OVRNIGHT CHG to 04:23 AM:S&P-150, DOW-21,
NIKKEI Closed, FTSE+2 The stock market made a statement Monday that has to put
the bear camp back on its heels. While the market will continue to fight an
uphill battle, one might expect prices to continue a gradual climb today,
especially with a slight assist from US economic numbers. While the terrorism
threat rating change, ultimately hurts near term macro economic and investing
sentiment, it would seem that the stock market is capable of playing down the
threats into the holiday period.

DOW

The Dow continues to outperform the S&P and the rest of the market and that is
because many Dow stocks benefit from a lower Dollar and certainly benefit from
lower energy prices. We donâ€™t get the sense that the Dow is ready to end the
winning streak but the market is moderately overbought from a short term
perspective and will move into very thin conditions later today. New highs
early, but we are not sure that the market will drive consistently higher all
the way into the close.

S&P

With the net small spec long position probably holding 35,000 contracts below
record long readings and the recent bias pointing up, we have to think that the
bull camp will control prices at least through the first 3 hours of action
today. Top of the up trend channel in the March S&P comes in today at 1099.60
and that would seem to be close enough to even numbered 1100 to stimulate
program traders into action. However, as mentioned before, the market needs a
steady diet of favorable economic news just to gloss over the recent terrorism
threat. Therefore, consumer spending needs to be up by at least +0.7 and the
Michigan numbers need to rise by at least 2 points to keep the bulls interested.
Todayâ€™s upside target is 1096.90.

FOREIGN EXCHANGE

US DOLLAR

While many pundits think that the downtrend in the
Dollar continues, the charts show more of a consolidation pattern since the
December 17th low, than it has a downward continuation pattern. Certainly the
fresh low Monday favors the bear camp but if the Dollar could only forge a
minimal probe into new low ground on the increased terrorism threat against US
domestic interests, then the bear camp isnâ€™t that impressive. While US economic
numbers havenâ€™t been able to direct the Dollar, we suspect that the numbers and
US equity market action will at least provide early support to the Dollar today.
We are not confident enough in the bottoming potential to suggest a long Dollar
futures play but we are willing to recommend to position plays a short
Dollar/Long multiple call play in the June options. In fact, if the Dollar canâ€™t
bottom or there is a terrorism incident on US soil, the short Dollar position
should easily recoup a significant portion of the long call premium. We might
also suggest that year end book squaring in the Dollar should favor the bull
camp! However, it might be a little early for year end action!

EURO

While the trend in the Euro is still pointing higher
and recent current account numbers seem to favor the upside, the Euro didnâ€™t
make as much ground Monday as many expected it would. In fact, it would seem
like the Euro is consolidating just like the Dollar. Therefore, traders might
want to go with a breakout system in the Euro using 124.07 and 123.20 as
critical pivot points in the action today. A sharp decline in open interest and
volume on the recent rally could be a negative signal but with holiday action
affecting trading patterns, we need to see more information before calling a
major top.

YEN

With Japan closed for holiday, some might expect
that the BOJ is less likely to intervene but that may be an incorrect
assumption. It would seek like the Yen is poised to test the top of the recent
consolidation and that a move above 93.53 might signal an upward pulse. However,
due to thin conditions, it is possible that some buying volume stays on the
sidelines and robs the market of a rally.

SWISS

Since the Swiss is a market that has recently been
overbought and prices sitting very close to support on the charts, we fear that
the Swiss is set to roll over down to 79.31. However, unless the Dollar manages
a rise above 88.60 we do not think that the Swiss is in for a major failure.

BRITISH POUND

Surprisingly the Pound has checked up without major
damage on the charts. Just like the US, the UK has managed to discount the
potential threat of terrorism (at least in the near term) and therefore the
March Pound looks to have solid support around the 175.00 level. With the UK 3rd
quarter GDP coming in at +0.8% and the US GDP expected to trump that level many
times over this morning, it could be difficult for the Pound to restart the up
trend pattern. However, the UK still has greater prospects for higher interest
rates and that seems to be carrying bull sentiment into the Pound.

CANADIAN DOLLAR

The reprieve for the Canadian continues but a rise
in the US Dollar back above 88.60 could catch the Canadian in a vulnerable
condition. In the mean time. the bulls look to maintain a slight edge and
probably will see some added short covering with a move above 75.11 today.

METALS

OVERNIGHT

GLD-0.30, SLV+1.00, PLAT+6.60 London A.M.
Gold fix $409.60 -$1.20 LME COPPER STKS 440,675 tons -4,375 tons COMEX Gold
stocks 2.99 ml -65,016 oz Comex Silver stocks 125.0 ml oz +1.22 ml oz

GOLD

While gold was supported by the increased terrorism
concerns, it would seem that the market is picking up only marginal buying
interest in mostly quiet trade action. Chinese gold was slightly higher, while
Japanese gold trading was suspended due to holiday. With the US Dollar coming
into the session slightly higher, the gold market is without clear direction
into the US opening.

SILVER

It would seem like silver had trouble tracking
alongside gold in the action Monday and with a massive 1.2 million ounce
increase in COMEX silver stocks overnight, the silver market could have an added
burden today. While it would seem that silver has lost positive momentum we
donâ€™t see the market breaking down unless the gold market fails to hold at $407.
Bottom of the up trend channel in March silver comes in today all the way down
at $5.537.

PLATINUM

Following the most significant correction of the
last year, the platinum market seems to be poised to consolidate above the $790
level. In our mind, the platinum market liquidated an overbought condition on
the fears that demand expectations might be running ahead of reality. While a
terrorist attack could certainly injure demand for platinum, we think those
fears are overstated.

COPPER

The copper market corrected harder and quicker than
we expected Monday but we are not sure that the market will extend the downside
action unless there is a little more weakness in world equity prices. We would
think that US economic reports today would be slightly supportive but with
Shanghai copper price action sharply lower overnight, it would seem that the
Asian markets are following the US action not leading it! So far, daily exchange
stocks in London show no sign of mounting a year end rise, which would be a
development that could add some increased pressure to thinning trading
conditions. In the near term traders should remain long the March copper 100
puts we suggested Monday morning, looking to hold the position into year end.

CRUDE COMPLEX

12/23 OVERNIGHT CHG to 04:23 AM:CRUDE-39,
HEAT-78, UNGAS-54 We suspect that a large portion of the selling Monday was the
result of funds standing aside from recent long positions. Since the Press was
full of headlines last week of a cold North American winter and many industry
specialists were projecting even higher energy prices in the months ahead, the
energy complex had already built in a significant long position. However, with
the increased terrorism threat slamming into the market over the weekend, the
funds were caught in bad positions and forced to liquidate.

NATURAL GAS

The natural gas market failed under the weight of
weakness in the regular energy complex and because of lingering mild weather in
large portions of the US. Traders should note that the weekly inventory report
will be released Wednesday, instead of Thursday this week due to the holiday.
Near term support in the March natural gas comes in today at $5.95 but an even
lower price could be seen if the regular energy complex continues to slide.

Â While the market will continue to fight an
uphill battle, one might expect prices to continue a gradual climb today,
especially with a slight assist from US economic numbers. While the terrorism
threat rating change, ultimately hurts near term macro economic and investing
sentiment, it would seem that the stock market is capable of playing down the
threats into the holiday period.

DOW

S&P