Futures Point To A Flat Open
INTEREST RATES
While the Treasury market slumped away from the
recent highs, we don’t get the sense that the market is primed for a sustained
downside thrust. Certainly Monday brought a wave of potentially favorable
developments for the economy, with the Iraq hand over, sharply lower energy
prices and an initial rally in equity prices. However, we just don’t get the
sense that the economy is moving forward aggressively and that should keep the
selling in the Treasuries to a minimum.
STOCK INDICES
The stock market capitulated after failing to
embrace the “rally window†of the last 5 sessions. We can understand the market
passing on the Iraqi hand over issue but from an economic perspective, the whole
Iraqi situation is only a psychological impediment to future growth. In other
words, the most important development of the last two weeks is the fact that
energy prices have fallen considerably.
DOW
The September Dow should have solid support down at 10,300, but the market could
temporarily slide into the early June gap area. Aggressive traders should Sell a
September Dow on the dip to 10,310 and buy 3 August Dow 10,600 calls for 750. In
the event that the Dow falls deep into the gap, following the FOMC meeting, the
short futures will begin to finance the call play!
S&P
While the September S&P seems to have recoiled away from the overnight lows, we
have to think that the near term bias is pointing down. However the S&P seems to
have a decent chart setup and seems to want to retain the overall bull track. A
pattern of higher lows could give the market solid support down around 1124.90.
Traders should consider a combination: Sell 1 September S&P futures at 1130 and
look to buy 3 August S&P calls 1165 calls for 900. In the event that the market
fails to bottom over the coming three sessions, the futures will eat into the
cost of the options, allowing one to take profits on the futures and then be in
position to pick a more significant bottom late this week.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seemed to come under a short covering
interest overnight and really isn’t giving off the impression that favor is
returning. US economic information is expected to be supportive today, but in
general the market really isn’t seeing the US economic situation as an overall
positive for the Dollar. We suspect that some Dollar sellers are simply moving
to the sidelines ahead of the FOMC meeting, but once the meeting is out of the
way the bears might return to the Dollar. While we were bullish on the Dollar in
early June when it seemed like the numbers were expanding, we are tempering our
longer term bullish toward the Dollar because it is clear that ultra high energy
prices and the uncertainty in Iraq have taken the edge off of the US growth
rate. In short, the Dollar might be lucky to see prices rise to 89.52 over the
coming 36 hours and that rally should be considered a selling opportunity.
EURO
The Euro chart is starting to flesh out a more
bullish setup and with an improvement in French Business confidence it would
seem like the economic outlook is supporting not detracting from the Euro
outlook. The top of the current uptrend channel in the September Euro comes in
at 122.24 today and at 122.34 on Wednesday. Critical support in the Euro at
120.58 can be bought ahead of the FOMC meeting result.
YEN
The trade expects the upcoming Tankan survey to show
the strongest reading since 1991 and that should underpin the recent gains in
the Yen. With the recent correction in the Yen, the technical overbought status
is at least partially corrected and that could allow the Yen to resume the
upward track. Unfortunately trend line support in the September Yen comes in all
the way down at 91.51.
^next^
SWISS
With a damaging technical trade overnight, the Swiss
would seem to be vulnerable to a further decline. Maybe the presence of higher
US interest rates will temporarily undermine the Swiss and send it down to lower
support of 79.40, but a decline to 79.00 should be considered a buy.
BRITISH POUND
We think the Pound is vulnerable and with the chart
showing muted and unsustainable long side interest, it would seem like the
overall pattern of prices is pointing down. Aggressive traders might consider
getting short the September Pound on a bounce to 181.40.
CANADIAN DOLLAR
The trade expected a political debacle in the
elections and yet the Liberal party won re-election, but failed to retain the
majority in Parliament. Therefore, the political condition was feared to be a
negative to the currency but in the end the election wasn’t much of a negative
at all. We continue to think that the Canadian is in an upward track but that
long futures traders should sell 76 calls and buy 73 puts until the trend is
fully entrenched again.
METALS
OVERNIGHT
London A.M. Gold Fix $396.75 -$4.95 LME
COPPER STOCKS 105,375 mt tons +275 tns COMEX Gold stocks 4.401 ml -2,251 oz
Comex Silver stocks 117.7 ml +600,622 oz
GOLD
Monday was simply a session that discouraged gold
bulls as some flight to quality uncertainty was removed, the Dollar failed to
extend on the downside and some traders decided to take profits ahead of the
FOMC meeting. Some in the trade suggest that Gold will be negatively impacted by
an aggressive Fed move, as that will prompt a return to forward selling, but the
odds of an aggressive Fed move are probably reduced by the disjointed pattern of
recent US economic numbers. Because the August gold contract failed at
psychological support of $400 it would seem like the market is headed back down
to the mid June consolidation of $397.7 to $393.2.
SILVER
As expected the silver market slumped right
alongside gold and would also seem to be headed back down to consolidation
support around $5.855. The moving average shifts into the bear camp with a slide
back below $5.882 in the September contract. The big upward thrust yesterday
morning left the market overbought and vulnerable to an even bigger setback, if
the US Fed decides to go strong with a 50 basis point hike.
PLATINUM
With striking workers returning to the Impala mine,
Asian demand unclear and the precious metals soft, we see no reason why October
platinum wouldn’t slide down to critical support at $765. Even lower support of
750 could be tested in the event that Chinese and Asian demand expectations
remain weak. However, on a move to $750 the platinum market would probably have
a moderately large net spec short position in place.
COPPER
The copper market remains weak and could trade below
a critical pivot point and a moving average with a slide back below 119.40.
Chinese copper futures were lower and it would seem like the copper market
missed out on what could have been an improving macro economic condition. From
the action of the last several sessions, it is clear that the trade sees copper
prices above 122.40 as too expensive for current fundamentals.
CRUDE COMPLEX
The energy complex simply caved in Monday and did
so under an avalanche of bearish developments. While the weekend negatives of
restarted Iraqi production and the end of the Norway strike started the slide,
we suspect that the surprise Iraqi hand-over facilitated the wholesale
liquidation. While the market is severely damaged and under the assumption that
supply is set to rise, we have to think that prices will only find support once
they have liquidated down to the mid April consolidation in crude oil and to the
June lows in August unleaded.
NATURAL GAS
The natural gas market fell through a couple layers
of support and would seem to be headed to critical pivot point support down
around $6.16. With the forecast for warm temps pushed out until July 12th, we
suspect that some bulls were disappointed with the setup and they moved to the
sidelines. Furthermore, with the natural gas market seeing constant spillover
pressure from the regular energy complex, many of the switchover commercial
users might throw supply back onto the market.