Futures Point To A Flat Open
9/24/2004
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INTEREST RATES
The Treasury market has backed off slightly from
the recent highs and that should reduce the vulnerability of the long camp
slightly. While economic numbers this week have been supportive of the bull
case, we are beginning to be a little concerned about the relative level of
Treasury prices, especially since the funds are probably holding 85,000 longs.
However, since the numbers have hardly shown anything positive it is difficult
to rationalize a short side view.
STOCK INDICES
The bias in prices is down, with the real
question being whether or not prices should go down hard or simply in a slow
step wise grind! With the Japanese stock market down rather aggressively
overnight and the US equity market chart setup pointing down, one has to assume
that the bears control until there is a reason to think that the big picture
outlook is set to improve. In fact, it would seem that very little is capable of
stemming the rise in energy prices, as rumors of a release from the US Strategic
Petroleum Reserve hardly caused a ripple in energy prices yesterday and it would
seem that the energy complex is convinced that the remainder of the hurricane
season will provide periodic threats to US energy supply flow. When one adds
into the equation, slack economic readings, the prospect of more Fed tightening
(as derived from the release of the last FOMC meeting minutes) and the extremely
tense condition of the situation in Iraq, it is not hard to concede control of
the stock market to the bear camp.
DOW
As we suggested at the beginning of the week, the Dow is having a tougher go
than the rest of the market, as the fear of soaring energy prices and rising
interest rates is more significant to the large Caps. In addition to soaring
costs for large Cap stocks, the Dow is also under pressure from concern of
slowing sales activity in big ticket items. Therefore, we hardly see the
December Dow avoiding a slide down to 9,900, but a close below that level could
really serve to undermine sentiment. In fact, unless the December Dow manages to
climb back above 10,107, assume that the trend in the market is pointing
downward.
S&P
Near term downside targeting in the December S&P is 1100 but given the breadth
of the negative issues confronting the market, we would not be surprised to see
the market slide all the way down to 1095. While we are not sure that
fundamental uncertainty is high enough to expect a big single day down washout,
it is clear that the bears have control. Given the recent decline in volume, it
would also seem like the market will continue to have trouble finding long
interest to stem the current slide. In conclusion, unless the December S&P falls
down to the 1102 long entry point early in the session, don’t look to get long
at that level late in the session.
FOREIGN EXCHANGE
US DOLLAR
From the early action today it is clear that the
bias in the Dollar is still down. However, given that the forecasts for the US
numbers today, (which are expected to show only minor declines) we are not sure
that the Dollar is destined for an aggressive slide. It would seem to be easy to
put the December Dollar down to the next support level of 88.21, but in order to
get the Dollar below that pivot point, it might take something more significant
than is expected. However, since it would seem like the tropical storm pattern
will remain a threat to US energy market activities and that could be seen as an
isolated negative for the US economy. With the numbers today expected to be soft
and the technical posture of the Dollar mostly undermined, the bear camp has to
be favored. On the other hand, the Dollar has shown a tendency to bounce up away
from the 88.24 level.
EURO
A sharp contraction in German inflation numbers
overnight could be seen as a negative toward the Euro but we suspect that
negative sentiment toward the Dollar and the US economy will trump the
dis-inflation impact. Near term support in the December Euro comes in at 122.49.
On a positive note for the Euro, Italy posted a moderately impressive rise in
July Industrial sales and a significant leap in industrial orders of +2.3%.
Therefore, there is at least a notable headline capable of fostering bull
interest in the Euro. Near term resistance in the December Euro comes in at
123.30.
YEN
The Nikkei was down sharply again overnight but the
Yen doesn’t seem to be under as much pressure this morning, as it was earlier in
the week. Therefore, it is possible that near term support of 90.59 is going to
be capable of holding up the Yen. However, if US numbers manage to come in much
weaker than expected, that might result in the Yen violating recent support.
SWISS
While the Swiss seems to be a little weaker
overnight, we suspect that it will find fundamental and technical support off
the US report slate today. Therefore, we suspect that the Swiss will be able to
hold above 79.48, but we are not sure that the Swiss will find the inspiration
to launch into a sharp rally.
BRITISH POUND
The chart formation in the Pound would seem to
suggest that the market is poised for an upside breakout, but we must note that
overhead resistance is quite significant off the underside of the July and
August consolidation. The Pound has come into vogue this week and that would
seem to give the bulls enough of an edge to play the long side of the currency.
CANADIAN DOLLAR
The trend remains up and as long as the US numbers
don’t produce anything surprising, we suspect that more gains are ahead. Next
upside targeting in the December Canadian comes in at 78.50, with the top of the
up trend channel coming in up at 78.80.
METALS
OVERNIGHT
London Gold Fix $409.45 +$0.95 LME COPPER
STOCKS 98,350 mt tons -450 tons COMEX Gold stocks 4.951 ml Unchanged COMEX
Silver stocks 109.3 ml Unchanged
GOLD
With the Dollar down again today gold should be
discouraged from aggressive downside action but in order to shift the gold
market into an even more positive mode, it might take a Dollar slide below
88.21. In a slightly negative note, an Australian miner indicated overnight that
they were raising their forward sales pace. In other words, the Miner Croesus
Mining is feeling some pressure to protect profit margins on almost 1/3rd of its
production.
SILVER
The silver market almost got above a critical pivot
at $650 yesterday but the market is just not seeing volume and open interest
ramp up like the bull camp would like to see. In other words, the market isn’t
getting a bullish confirmation on the recent rally from rising volume and open
interest. We can’t argue against more upside gains but we are having trouble
isolating the theme behind the current rise in prices.
PLATINUM
A big blip up in volume this week would seem to
signal a more significant rally ahead in platinum. With the Dollar mostly soft,
the gold trying to rally and copper persistently showing strong physical support
from China, we have to think that platinum is set to benefit from external
factors. Therefore, the path of least resistance is up in platinum, with
critical resistance seen up at $864.5 and that level is also a near term target.
COPPER
Chinese copper futures were higher overnight lending
a positive note to US copper prices. With Shanghai copper stocks declining by
6,090 tons and now standing at 23,375 tons, the market should also see a
positive spin from the supply side of the market. However, the copper market is
certainly overbought after the action this week, but it would have been more
vulnerable to profit taking if it were not for the back and fill action seen
yesterday in the US market.
CRUDE COMPLEX
The energy complex started out weak yesterday as
rumors of a release from the SPR were circulated. However, later in the session,
after the White House indicated that they were only considering a loan of oil
from the reserve to refiners, the bearish tilt from the rumors was dramatically
reduced. While we continue to see talk this morning about loaning some supply
from the Reserve it would not seem like that issue is going to result in a
widespread and sustained liquidation.
NATURAL GAS
The weekly inventory report wasn’t a shocker like
the US crude and gasoline stocks report from Wednesday. Some suggest that the
inventory report might have a 2 week delay and that could keep prices supported
up around the recent highs. With a 68 bcf injection there could have been a
negative reaction in prices, but with the market still not sure what the final
impact of the last storm was, it would be unwise to pressure prices
aggressively.