Futures Point To A Flat Open
INTEREST RATES
12/18 OVERNIGHT CHANGE to 04:18 AM:BONDS+14 There
is apparently no stopping the Treasury market, as prices roared through several
layers of resistance and did so in the face of another new high in the Dow. The
fact that demand was strong for a junk bond issue this week, suggests that the
Treasury gains are not simply a result of thin conditions being overly impacted
by light speculative buying. It is certainly possible that Bank of Japan buying
is aiding the upside but again the gains seem to be much too significant to be
laid at the feet of a central bank, especially since the strength is stretching
out over a period of time.
STOCK INDICES
12/18 OVRNIGHT CHG to 04:18 AM:S&P+140, DOW10,
NIKKEI +11, FTSE+14 To look at the action in the US bonds and the Dollar, one
would think that stocks would be in a bear market. However, the stock market
continues to bulldog its way to new highs despite persistent early bearish
psychology. In fact, the trade seems to want to take prices down in the morning
action but investors seem to be able to alter the course of trade and affect a
strong close.
DOW
We expect the Dow to continue to exhibit less volatility than the S&P and that
should make for a more uniform upside track in prices. However, given the rise
in the market this week and rising energy prices, the Dow might need to see as
expected or better than expected, economic readings this morning to continue
forging gains without fail. Trend line resistance comes in at 10,210 and near
term support on the charts should hold today at 10,098.
S&P
The S&P continues to cut right through those selling into the recent rally. We
suspect that the small spec long is approaching typical overbought levels but
has not yet reached levels that are extensively overbought. Top of the up trend
channel comes in today at 1093 and near term support should be respected today
at 1075.20, unless the early numbers are patently disappointing!
FOREIGN EXCHANGE
US DOLLAR
The Dollar is within striking distance of another
new low this morning but comments from the ECB might discourage aggressive
selling of the Dollar. The ECB suggested that the rising Euro was making it more
difficult for the Euro zone recovery but also suggested that they do not support
taking action against the currency. Therefore, the downtrend in the Dollar looks
to remain in place but maybe with a few less supporters. We doubt that US
numbers this morning will be so strong that the down trend in the Dollar is
turned off, especially since German economic readings this morning set a high
bar for the US to overcome. In the near term, the next downside target in the
Dollar is 88.00 but the downside might slow if the dialogue against the slide in
the Dollar continues to surface on a periodic basis. In our mind, the only thing
that stops the Dollar slide is ultra-ultra strong US economic action or
concerted central bank intervention against the Dollar. Keep in mind, the
Japanese are already acting to support the Dollar!
EURO
The head of the ECB claimed this morning the Euro
rise against the Dollar was making recovery more difficult but with the Eco
readings on the German economy, coming in the strongest since 1994, the comments
seem to be discounted slightly. In other words, the Euro zone economy seems to
be coming around but according to official comments yesterday, will not be as
strong as the US recovery. We think that ECB officials are starting a campaign
to slow the rise in the Euro but they have officially said they would not try to
direct the value of exchange rates! Therefore, the uptrend in the Euro continues
but may have slightly fewer followers. The next upside target is 124.45.
YEN
The Japanese might find a little political baggage
from the promise to send troops to Iraq and some suggest that same type of
baggage is part of the reason why the Dollar is in a decline. However, the main
issue dominating the Yen is the intervention or threatened intervention by the
BOJ. We expect near term resistance to hold at 93.43 but for the yen to avoid
much in the way of a near term decline. Unless the Dollar shows signs of rising
back above 88.47 this morning after the US reports, the Yen should not fall back
below 92.96.
SWISS
It is surprising that the Swiss didn’t manage a new
high move overnight and that might suggest a temporary overbought condition. We
suspect that US numbers early in the session today will result in a Swiss slide
to 79.76 and then the currency should find buying support.
BRITISH POUND
Strong retail sales data combined with the fear of
rising housing prices, leave the market fully expecting higher rates from the
UK. The net effect of the fundamental setup, is that the currency trade is
convinced that the UK economy is strong enough to weather higher rates and that
in turn will continue to attract buyers to the Pound. More upside, with the next
target coming in at 176.40.
CANADIAN DOLLAR
Something has indeed changed and the Canadian is set
to make a major decision. In fact, a failure below 74.90 today, could project a
slide all the way down to 74.00. The coming two sessions are extremely critical
to the existence of the bull trend in the Canadian.
METALS
OVERNIGHT
GLD-0.30, SLV+4.20, PLAT+6.80 London A.M.
Gold fix $410.75 +$3.25 LME COPPER STKS 449,525 tons -3,825 tons COMEX Gold
stocks 3.062 ml -129 oz Comex Silver stocks 124.4 ml oz +2,006 oz
GOLD
With the rise Wednesday and the close above $411,
the gold bulls effectively rekindle the bull case and swing sentiment back into
their favor. While it might be a little disappointing that gold needed two
straight days of fresh contract lows in the $ to shake off the back and forth
action seen for most of December, it is clear with the rise to new contract
highs this morning that the bull trend lives on. However, after a run to $414.6
overnight, gold has fallen back into the critical pivot zone around $411.
SILVER
Another new high is being posted overnight and that
would suggest that silver is in an even stronger posture than gold. The trend is
up and the technicals aren’t so overbought that gains will be limited. Next
resistance on the monthly chart comes in up at $5.80 and then the only
resistance to be found on the charts comes in up at the early 1998 consolidation
of $5.84 to $6.35! We continue to think that the silver run is mostly an
investment run and has little to do with the expectation of surging physical
demand, especially since COMEX stocks are showing no signs of tightening.
PLATINUM
While platinum has forged what appears to be a blow
off top reversal overnight, it has exhibited such performance before and managed
to right the ship within a short period of time. However, some traders might
note that the magnitude of the gains yesterday and this morning were quite
extensive and that the technicals have to be a little exhausted, at least from a
short term perspective. With interest in all precious metals soaring, supply of
platinum tight and demand expected to expand, the only thing that would clearly
signal a top, would be a Russian promise of more supply.
COPPER
The Asian trade was higher overnight leaving the US
market in a positive position to start the US session. Prices have been strong
despite news yesterday that Chile expects to see output rise by more than 10% in
2004. Apparently Asian traders are afraid to sell into the current rally but it
seems that someone was willing to sell into the market, considering the setback
after the rise through $1.00.
CRUDE COMPLEX
12/18 OVERNIGHT CHG to 04:18 AM:CRUDE+20,
HEAT+27, UNGAS+35 On top of the recent demand stories, the energy complex saw
another tightening in US crude inventories. This time the market did not see an
offsetting rise in product stocks to quell the bullish psychology. With the US
crude stocks falling to 201 million barrels, the market sees an inventory level
that the EIA calls “critical”.
NATURAL GAS
The natural gas market saw support from the regular
energy complex and because many traders wanted to buy weakness Wednesday to be
long into the weekly inventory report. In a bull market, buyers are confident
enough to buy in ahead of supply readings, even if the technicals are glaringly
overbought. The trade expects a draw of 115 to 135 bcf and that pretty much
kicks the draw season into high gear.