Futures Point To A Flat Open
8/27/2004
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INTEREST RATES
The Treasury market is coiling on the charts as
if it is prepared to rise to an even higher trading range. While it would seem
like some of the numbers are holding together in the US, other numbers are
softening and we are simply not comfortable discounting the potential negative
impact of high energy prices. In fact, with expectations for the GDP report this
morning being consistently lowered, it might be a little more difficult to
thrust higher today unless the numbers are really weak.
STOCK INDICES
One has to give credit to the bull camp, as the
market is weathering a significant amount of adversity from the economic and
political fronts and still manages to remain positively poised on the charts.
Even with energy prices showing signs of renewed strength today and the Iraqi
government promising not to try to arrest the leader of insurgents, (even though
he was directly responsible for numerous deaths) the stock market doesn’t seem
to be adversely impacted by the turn of events. Even the macro economic
condition seems to be negative enough to undermine stock prices but that also
isn’t happening.
DOW
While the Dow seems to have loss some upward momentum, this market has shown the
ability to forge gains even without fundamental cause. Near term upside
targeting comes in at 10,218, but a big failure move could get underway with a
simple slide back below 10,140. The trend is up but we want nothing to do with
the current risk and reward setup of long side plays.
S&P
Critical resistance is seen today at 1106.50 and a failure takes place with a
slide back below 1101.80. September options have 20 days until expiration and a
just out of the money put might be an interesting play into the coming payroll
report. Consider buying the September 1080 or 1085 put, as both those options
could easily be in the money next week.
FOREIGN EXCHANGE
US DOLLAR
If the US stock market can rise without fundamental
justification, it is probably possible that the Dollar can continue to rise in
the face of slackening economic readings and soaring energy prices. From a short
term perspective, the Dollar seems to be in a minor downtrend but since the
August low, traders have been bidding up the Dollar in direct conflict with the
scheduled report flow. We suspect that the Dollar is now primed to slide back to
the mid August consolidation down below 88.00 but given the surprising themes
being generated in the currency markets, we can’t rule out an attempt to rally
to 90.00. Therefore, traders should consider buying the October Dollar 89 puts
for 75 points and looking to hold that position for at least a couple weeks. If
the US Fed Chairman were to concede an extension of the slowing, because of
soaring energy prices, that could set the Dollar into a downward motion.
EURO
In the last four months Euro rallies have come from
extreme negatives in other countries and that could be what we are about to
experience. We think the US Fed Chairman will be forced to tell it like it is
today and that means that ultra high energy prices have extended the temporary
slowing pattern in the US. While the Euro zone isn’t exactly the land of plenty,
the Euro is oversold technically and could be primed for a bounce. But as we
suggested in the Dollar, the Euro could easily continue to slide aggressively
and that is why traders should consider buying an October 122 call, which in a
sense defines the risk of picking a bottom.
YEN
The Japanese stock market was higher overnight off
expectations that the GOP convention in the US would whip up some optimism
toward the US economy. However, Japan is seeing signs that its own recovery is
faltering and that seems to have undermined the Yen overnight. In fact, seeing a
trade below 91.20 today could mean a big failure is ahead in the Yen.
SWISS
The consolidation low in the Swiss seems to be
capable of holding. Traders should get long at 78.45 and use an extremely tight
stop of 78.20.
BRITISH POUND
With the 2nd quarter UK GDP coming in at +0.9% that
certainly seems to lower the bar for the US GDP reading. While the UK GDP
reading was mostly on expectations, we suspect that the Pound will be given some
support on the charts as a result of the numbers. Like the Swiss, we would buy
the Pound at current levels and use a tight stop just below this weeks low.
CANADIAN DOLLAR
A series of lower highs in the Canadian clearly
leaves the currency in a down trend pattern. However, there is a good chance
that the even number zone around 76.00 will be enough to hold prices up. On a
dip to 76.30 buy an October Canadian 76.50 call for 76 and hold for a position
play.
METALS
OVERNIGHT
London Gold Fix $406.85 +$.90 LME COPPER
STOCKS 107,825 mt tons -700 tonnes COMEX Gold stocks 4.823 ml Unchanged COMEX
Silver stocks 109.3 ml -234,259 oz
GOLD
With the market waiting on US data and US dialogue
we suspect that prices will be somewhat vulnerable. According to some sources
the gold market is seeing a gradual improvement in physical demand and that
could be why the gold market has been generally considered to be in an uptrend
since the July low. A brief strike at a Harmony mine was of no impact on prices,
as the trade is really waiting on clues to the direction in the Dollar.
SILVER
The silver market continues to waffle around the
moving average but has generally maintained a positive track. COMEX stocks
continue to slide lower and eventually that should generate some positive
headline flow for silver. Furthermore, the silver market has forged a consistent
pattern of higher highs and higher lows in a channel that has been in place
since mid June.
PLATINUM
The platinum market forged a huge range overnight
with a positive bias. Dow Jones is reporting that the number 2 platinum producer
in the world, Impala saw its net profit slide by 14% due to currency issues but
despite the profit contraction production at the company rose sharply (+15%).
Therefore, it is clear that some additional platinum is being found outside of
Russia and that might serve to mitigate the supply squeeze.
COPPER
While the bias on the charts is negative, the copper
market will be looking to the US numbers and US dialogue for leadership today.
With Shanghai copper prices down overnight, US prices could have come in weak
but with Shanghai copper stocks declining by 7,088 tons one could see renewed
talk of strong Chinese demand for copper. However, in order for copper to shake
the liquidative tilt in place since the August high, expectations for US growth
must remain in place following the GDP report this morning.
CRUDE COMPLEX
While the energy complex pulsed down again
Thursday morning, crude oil did manage to fight it way back to positive ground
yesterday afternoon. This morning energy prices are starting out firm, possibly
because of the way the most recent Peace deal was structured and partially
because Al-Sadr is apparently going to live to fight another day. Even after
reports from Iraq late Thursday afternoon announced the Peace Deal had been
struck in Najf it did not appear as if prices came under any pressure.
NATURAL GAS
The weekly natural gas inventory report showed a
slightly larger than expected injection of 84 bcf, but that didn’t prevent the
annual surplus figure from rising to 262 bcf. Since natural gas prices have
declined sharply since the last COT report we suspect that the small spec long
is quickly being washout out. However, we are still not inclined to pick a
bottom in natural gas, as we doubt that the small spec and fund short is close
to a record net short.