Futures Point To A Flat Open
9/29/2004
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INTEREST RATES
Some might call the recent action around the
highs in bonds a quadruple top, while others might call the formation a double
top, but in the end it is clear that bonds have run into psychological
resistance. In other words, it seems like the Treasury market is either trying
to balance the overbought technical condition, or really is in need of a
distinct worsening of the macro economic outlook. We suspect that the action in
the stock market, in the face of soaring energy prices undermines the bull camp
in Treasury prices, as macro economic sentiment seems to be capable of
weathering the added pressure of ultra high energy prices.
STOCK INDICES
The stock market managed to forge what we call a
classical bottom formation on Tuesday, with prices falling sharply early in the
session and then recovering smartly to finish higher on the session. In addition
to the technical sign of a low, the market also showed that it can fundamentally
downplay the concern of even more increases in energy prices. However, in order
to translate the current market into a sustained bullish position, we need more
than a temporary reprieve from ultra high energy prices.
DOW
The near term path of least resistance is pointing up but short covering isn’t
usually the strongest cause! We suspect that the December Dow will be able to
mount a rise to 10,102 but in order to climb to even higher resistance of 10,140
the market will need to see an additional bullish headline surprise.
S&P
Near term critical resistance in the December S&P is seen at 1111.50, while a
failure would take place with a slide back below 1107. We have the feeling that
the downtrend is ready to return with even the slightest provocation.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to languish on the charts with
the pattern of lower highs clearly present and confirming the bearish tilt. We
doubt that US economic numbers due out this morning will provide the impetus to
rally, but with the UK seeing a downward revision in its GDP reading the Dollar
might find support if the US readings manage to come in at expectations. While
we think the trend is down in the Dollar, we are not sure that the market has
the fundamental reasoning to breakout to the downside. In fact, with the UK GDP
readings and the ongoing concern for the Japanese economy, it is difficult to
press the Dollar so low in the last months trading range. In order to turn the
trend up in the Dollar, the December contract would have to climb above 88.46.
EURO
With the Euro zone economy barely managing to avoid
contractionary inflation readings and the currency holding high in the last
months range, the risk and reward of fresh long plays seems unattractive. Even
after ECB officials suggested that soaring oil prices were acting like a huge
tax increase on the Euro zone economy, the market remains generally bullish
toward the Euro. Therefore, we suspect that the Euro will attempt to hover
around the September highs but will lack the capacity to breakout to the upside.
YEN
While the Japanese stock market continues to be
weak, a bit of fundamental support was seen from the Tankan expectations. With
Japan showing strong industrial demand for gasoline in August, it would seem
like the economy is hanging in better than what the currency is giving credit
for. In order for the Yen to do anything other than short cover, energy prices
need to soften and the outlook for the US economy needs to improve. In the near
term, we suspect that the December Yen can rise to 90.86 on simple short
covering.
SWISS
The Swiss remains mired within a wide consolidation.
Near term resistance is seen up at 80.08 and the bottom of the range is seen at
79.23 but we have to think that the Swiss is a little near term overbought off
the recent flight to quality flurry.
BRITISH POUND
The Pound is certainly overbought and with the GDP
reading revised downward for August, it would seem like the market has an excuse
to take profits. UK 2nd quarter GDP readings showed a growth on only 3.6%
instead of the previous 3.7% reading. Near term downside targeting in the
December Pound comes in at 179.21.
CANADIAN DOLLAR
The Canadian shows no ill effects of the recent rise
off the mid September low and should continue the upward track until something
significant changes, or the market becomes overbought. Near term upside
targeting comes in at 79.20.
METALS
OVERNIGHT
London Gold Fix $411.55 +$1.25 LME COPPER
STOCKS 93,825 mt tons -450 tons COMEX Gold stocks 5.00 ml +60,120 oz COMEX
Silver stocks 109.1 ml +619,397 oz
GOLD
So far the gold market has respected the prior day’s
high and that creates the potential for a double top. The gold market will
probably be able to sustain some of the recent bullishness, but we are not sure
that it can attract even more buying unless the Dollar slides or crude oil
manages another new high. With the exception of the August high of $416.8, the
gold market currently sits at the highest level since early April and that means
the market will need constant external support.
SILVER
The silver market continues to maintain an upward
tilt on the charts but in retrospect the market only saw a minimal increase in
volume and an inconsequential rise in open interest on the last 40 cent rally.
In other words, the funds and the small specs don’t appear to be intensifying
their interest in the market. December silver should have close-in support at
$6.58 and little in the way of resistance until $6.855.
PLATINUM
A massive range down failure overnight should have
the fund and small spec long concerned and with volume and open interest rising
over the prior 5-6 sessions it would seem like a certain amount of players have
been caught long and are potentially in a position to be forced out of position
by stop loss selling.
COPPER
While the copper market continues to do a good job
of discounting potentially negative macro economic conditions, it is also
apparent that open interest has exploded without a commensurate increase in
volume and that would seem to leave the market without follow through buying
support. Chinese copper prices were soft overnight and with the Chinese holidays
looming ahead next week, we suspect that buyers will or already have covered
their needs and that could also rob the market of buying support next week.
Unless there is a sudden improvement in the macro economic outlook, we can’t
stomach paying up for copper prices above 134.50.
CRUDE COMPLEX
Despite past failings by Saudi Arabia they were
certainly a friend of the world economy in the last 36 hours, as the spot on
promise of an extra 1.5 million barrels per day of production certainly served
to derail the speculative fervor in crude prices. While the market doubts that
Saudi Arabia can provide the extra oil within the coming two weeks, the market
was unable to sustain most of the new highs posted early Tuesday morning.
However, with the weekly inventory report due out this morning and the potential
for ongoing hurricane impacts within the report, we have to think that the bulls
have an edge.
NATURAL GAS
With the BTU differential widening early this week,
it is clear that natural gas prices are attempting to play catch up to crude oil
prices. For those that are interested, call 312-786-4450 for a chart of the
historical crude/Natural BTU price comparison, as the chart really highlights
why natural gas is primed to rise to even higher levels in the near term. In
fact, with natural gas just recently managing to climb above the May highs, it
is clear that technical stop loss buying is only just beginning.