Futures Point To A Flat Open
8/23/2004
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INTEREST RATES
While the Treasury market is mostly without a
clear cut direction, it would seem that the high energy price situation is
providing some support, while the strength in equity prices is prompting some
selling interest. In short, the Treasury market is left to waffle in a range
waiting for something to change. While many economists assume that crude oil
prices bordering on $50 a barrel are robbing consumers of disposable income, the
Press this morning is rife with arguments that play down the slowing effects of
soaring oil.
STOCK INDICES
The stock market continues to discount the
potentially damaging effects of ultra high energy prices. In fact, Wall Street
economists have largely come to the conclusion that current energy prices aren’t
really that high if one adjusts them for inflation. Last week we suspected that
equity prices were anticipating an end game in Iraq, (or were at least expecting
a toning down of the aggression) but with prices showing higher early action
today there is something more than hope operating in the market place.
DOW
One has to give the bulls credit as they continue to swim against the economic
tide. One also can’t suggest that the recent gains have been technical short
covering, as the string of up days is becoming quite lengthy. The next upside
targeting in the September Dow would seem to come in at 10,165, with critical
support seen early today at 10,105. The weekly COT report showed the net spec
long in the Dow futures to be nearly 7,000 contracts short and that certainly
shows the market to be capable of making even more gains ahead.
S&P
The weekly COT report in the S&P shows its net spec and fund long to be a
minimal 16,000 contracts long and that also shows a market capable of forging
more short covering gains. The next upside objective in the September S&P comes
in at 1103.50 and then again at 1108.70. However, we just can’t buy into the
current rally, as the economy is too sluggish and energy prices seem to have
more upside before a major top is forged.
FOREIGN EXCHANGE
US DOLLAR
The Dollar has managed an overnight upside breakout
and is thought to be making the gains partially off an influx of foreign capital
from oil producers. Others think that investors see the potential for an oil
shock and are therefore moving into the US off flight to quality issues. Some
might even be pushing capital to the US because they have faith in the US Fed to
steward the US economy back into a strong growth posture. Some even suggest that
they doubt the Euro zone will be able to avoid a hard landing in the event that
oil prices do manage a global shock. Therefore, instead of favoring the US for
above average returns, the market might be favoring the Dollar from a defensive
posture. Near term resistance in the Dollar comes in at 88.66. It would not seem
like the Dollar is going to pay much attention to the macro economic report
slate and that could mean that the Dollar has a positive correlation to the
crude oil market.
EURO
A downside breakout on the charts has the Euro
poised for a slide down to 122.00. In fact, in order to turn the trend around,
the Euro would have to manage a climb back above 122.84. Some traders have the
Euro primed to slide all the way down to the 120.10 trend line, which comes off
the May and August lows. Like the US report slate, the Euro zone report flow
would seem to offer little in the way of significant news to alter the current
down trend pattern.
YEN
The Yen continues to coil but would seem to have a
slight undertow. With Japanese stocks rising in the face of firm oil prices, it
is clear that the Japanese economy is also attempting to discount the impact of
oil prices. Therefore, the Yen might be showing some early weakness but we
suspect that support around 91.00 will manage to hold up the market.
SWISS
The Swiss has made a series of failures on the
charts and would seem to be headed down to the early August consolidation lows
of 79.28 and possibly the August lows of 78.00.
BRITISH POUND
Even the Pound is showing signs of failing at
critical chart support. Critical chart support in the Pond comes in at 180.88.
However, we suspect that the Pound will be a buy after a further correction, as
the rally off the late July low wasn’t a total fluke.
CANADIAN DOLLAR
Even with the Canadian Dollar generally assumed to
be in an uptrend pattern, it seems like the US Dollar strength this morning is
prompting a temporary profit taking setback. However, we suspect that support
down at 76.82 will hold up prices. If the 76.82 level fails to hold, that could
mean a slide down to 76.66.
METALS
OVERNIGHT
London Gold Fix $409.95 +$4.15 LME COPPER
STOCKS 110,000 mt tons -450 tonnes COMEX Gold stocks 4.779 ml -103 COMEX Silver
stocks 111.3 ml Unchanged
GOLD
While the Dollar didn’t seem to have that tight of a
correlation with the Dollar last week, an upside breakout in the Dollar
overnight seems to have undermined gold early. While the Japanese were light
buyers overnight that hasn’t prevented the US gold from coming in markedly below
the Friday close. However, Chinese gold prices managed to reach the highest
levels since April and that could end up supporting copper and platinum more
than US gold.
SILVER
The silver continues to carve out an uptrend pattern
with a well defined channel. The weekly COT report shows silver to be net spec
long 71,000 contracts and that is a slight decline from the prior week and that
could mean that silver isn’t adding to its net spec long position as
aggressively as the gold market. Top of the up trend channel comes in at $7.018
today and then at $7.026 on Tuesday.
PLATINUM
While the Chinese gold price action could have
supported platinum overnight, the market continues to show a breakdown on the
charts. The weekly COT report showed the net spec and fund long position in
platinum to be 3,500 contracts, which is a moderately large position. We suspect
that October platinum is headed down to channel support at $835.
COPPER
The copper market continues to be slightly off
balance as last week’s isolated increase in LME stocks sent a shock through the
market. Also damaging copper sentiment is the fact that Shanghai copper stocks
increased slightly last week in China. So far, the copper market really hasn’t
shown too much concern for the soaring energy price action but given the
combination of slowing economics and rising energy prices, one can’t conclude
that macro economic conditions are favorable for copper.
CRUDE COMPLEX
The energy complex comes into the new week fresh
off another Iraqi pipeline attack and that should leave the bulls with
underlying control. The weekly COT report (which dramatically understates the
spec and fund long) shows the crude oil spec long position to be only 61,000
contracts. While the crude oil market (at the highs Friday) was over $2 a barrel
above the level where the COT report was measured, even that type of rally
probably wouldn’t have resulted in the net spec and fund long reaching
historically overdone levels.
NATURAL GAS
The natural gas market appears to be responding
again to the BTU comparison and arbitrage activity. With crude running up toward
$50 a barrel we suspect that utilities and commercial users are stepping up the
use of natural gas over crude and that is giving the market renewed support. The
weekly COT report showed natural gas to have the same countervailing fund and
small spec positioning it has held for months and therefore the technical setup
in natural gas certainly doesn’t prevent it from making a temporary upside
pulse.