Futures Point To A Flat Open
INTEREST RATES
12/17 OVERNIGHT CHANGE to 04:17 AM:BONDS+11
Considering the much better than expected US Industrial production readings and
the favorable action in the US stock market yesterday, the Treasuries are acting
very impressively. Maybe the support for Treasuries lies in the idea that
inflation is remaining very low and that rates are set to hold but that still
doesn’t explain the general upward tilt in prices. It is certainly possible that
BOJ intervention is fostering buying of US Treasuries and that other central
bank buying is resulting in firm US Treasury prices.
STOCK INDICES
12/17 OVRNIGHT CHG to 04:17 AM:S&P-280, DOW-29,
NIKKEI -178, FTSE+5 Some might look back at the action Monday and suggest that
prices forged a blow off top, as the volume was staggering and prices did recoil
aggressively away from those highs. However, one has to be impressed with the
perpetual interest on the part of the bull camp. One also has to be impressed
with the US Industrial Production readings, which almost grew by 1% in November.
DOW
The Dow managed to regain half of the big gains posted Monday, but seems to be
poised to slide back to 10,010. As suggested early in the week, the Dow seems to
be able to find support easier than the S&P. The fact that GE confirmed its
mostly favorable outlook should give the big Dow stocks a firm underpin and
minimize corrections. Right now, our worst-case “normal” correction in the March
Dow, might see prices slide down to 9,960.
S&P
We suspect that the S&P is set to slide down to channel support at 1057, but
fresh long players probably have to risk positions to at least 1051, so a long
entry must at least be placed down around 1057. Volume and open interest finally
reached respectable levels around the recent triple witching expiration and that
gives us confidence that this market will have the trading interest to rise to
another new high in the near future. In the mean time, prices are vulnerable to
profit taking but we expect investors to pick the market up after more minor
declines.
FOREIGN EXCHANGE
US DOLLAR
We would have expected the Dollar to charge down
into new low ground and stay there, but it seems that the consolidation bug has
taken control over the Dollar AGAIN. The Industrial production readings from the
US were very strong compared to the Euro zone Industrial production readings
released this morning and that would seem to give the Dollar a little support.
However, it is possible that the BOJ is providing significant support to the
Dollar on a daily basis and that is giving the Dollar an added lift. Many are
wondering how the US Treasuries are managing to rise, in the face of decent US
numbers and a generally strong US stock market and that could be because the BOJ
is intervening in favor of the Dollar and buying large amounts of US Treasuries.
Therefore, part of the Dollar support might be temporary but the relative
strength of the US economy is something that should make Dollar bears
uncomfortable. The trend still seems to be down but momentum is lacking.
EURO
To see that Euro zone Industrial production actually
contracted in the September readings (subsequent readings did rebound) shows
that the Euro zone is much slower than the US. Therefore slightly weaker Euro
pricing this morning isn’t that surprising. One might suggest that inflation
readings are more significant in the Euro zone, as CPI was actually higher and
that could attract some money to higher yielding European investments. In the
near term, the Euro looks set to consolidate after a minor slide lower. Support
is seen at 122.63 to 122.42.
YEN
The Yen continues to turn away from the high posted
early in the week and it would appear that the BOJ is working behind the scenes
to support the Dollar and keep the Yen down. As mentioned before, it is possible
that intervention is aggressive, because the US bonds are getting persistent
support from some source and the BOJ typically buys US Treasuries in the wake of
heavy Dollar purchases. Therefore, the near term track is down but the market is
fighting the track down. Aggressive traders might buY the March Yen on a slide
to 92.81.
SWISS
The Swiss doesn’t seem to be affected by the
consolidation tilt in the Euro and the Dollar. In fact, after a minor
correction, the Swiss might find solid support around 79.14.
BRITISH POUND
With the BOE talking about needing more rate hikes
in coming months, the Pound looks to get even more investment interest, as the
attraction of yield, could be a very big issue in the coming months. The trend
in the Pound is extremely solid and should allow for a progression of new highs
in the coming weeks. Buy a correction to 173.59.
CANADIAN DOLLAR
The Canadian is in trouble, as the broadening top
pattern wasn’t rejected and recent contract lows in the US Dollar did nothing
for the Canadian bulls. Therefore, the back of the bull market in the Canadian
might be temporarily broken and prices might slide down to 74.00.
METALS
OVERNIGHT
GLD+1.10, SLV+1.00, PLAT+10.70 London
A.M. Gold fix $407.50 -$2.20 LME COPPER STKS 453,350 tons -2,850 tons COMEX Gold
stocks 3.063 ml -296 oz Comex Silver stocks 124.4 ml oz +570,373 oz
GOLD
The Asian market didn’t show that much interest
overnight, with Chinese gold finishing the session slightly lower. The Dollar is
slightly higher overnight and that could be why the gold market lacked
definitive direction overnight. Besides the impressive rejection of the weakness
Monday, the gold market really hasn’t shown as much upside sensitivity as was
expected following the big breakout up last week.
SILVER
The silver market has actually held recent gains
better than gold but still seems to be perched precariously at the upper end of
the up trend channel. We might note another increase in COMEX silver stocks, as
the exchange stocks are certainly trending higher and would seem to discount
talk of improving physical demand. At 124.4 million ounces, COMEX silver stocks
are up from 73.5 million ounces in June of 1999.
PLATINUM
There is no weakness being generated in the platinum
market, as physical buyers might be into a situation where they are hoarding
supplies. Because the available supply in this market is so small and apparently
fixed in the face of rising demand, there is no reason to call an end to the
upside. We attempted to pick a top in this market with a long January put that
expired and those looking to pick a top in the first quarter would be well
advised to avoid short futures and invest in an April put.
COPPER
Chinese copper prices were higher overnight, lending
a bullish tilt to the US action. The fact that scrap prices continue to rise
suggests that the general upward track in all copper products is entrenched. The
added support of labor problems simply gives the market added incentive and with
the US industrial production readings much better than expected yesterday and
the US equity market putting on a much better run than many expected, it is
clear that the macro economic case in copper is pretty supportive.
CRUDE COMPLEX
12/17 OVERNIGHT CHG to 04:17 AM:CRUDE+18, HEAT+1,
UNGAS+7 While energy prices managed to fall back away from their highs Tuesday,
it would not seem like prices are prepared to slide aggressively. In fact, OPEC
might have been laying the groundwork for ignoring the 20 day banding mechanism
rule, (which was supposed to provide automatic production increases if the OPEC
basket price remained above $28 for 20 days) but suggestions late Tuesday that
OPEC might not address the “high prices” situation until the February meeting,
seems to kill the hope of more near term supply. In other words, OPEC is clearly
planning to let current conditions run, until the February meeting.
NATURAL GAS
From the charts it would appear that natural gas is
having trouble extending the upside, possibly because of an overbought technical
condition. It is also possible that slightly warmer temperatures have caused
fresh buyers to stand back. Certainly a slight pause in the regular energy
complex undermines the bull camp slightly, but with the economy showing signs of
chugging along and weather tending to normal or colder than normal, early in the
season, the general control of the market would seem to rest with the bull camp.