Futures Point To A Flat Open
10/22/2004
INTEREST RATES
The Treasury market ran up to significant new
highs for the move, but then fell back as it appeared that equity market
sentiment was simply capable of holding together. The Fed continues to suggest
that even higher interest rates are ahead, but they also suggested that the Fed
would not make decisions in a vacuum. In other words, if the numbers are
actually being softened by the growing percentage of disposable income being
spent on fuel and energy, then the Fed might hold off on the next rate hike.
STOCK INDICES
About the only thing that doesn’t fit in the
current fundamental mix is the fact that some stock sectors managed a bounce off
the lows this week. With perpetually higher energy prices, a sagging Dollar, new
highs in Treasuries prices and mixed earnings reports, it would not have been
surprising to see stock prices continue to slide sharply. When one also
considers the added weight of terrorism threats into the coming election and the
sheer uncertainty of such a close election, it is nothing short of miraculous
how stock prices have held up.
DOW
Since the Dow hasn’t bounced as much as the S&P, it might have a little less
downside capacity in the event that the broad based market dives. Clearly the
large cap stocks are under the gun of rising energy prices and that could be why
the Dow is holding close to its recent lows. We still think that the December
Dow is set to test the lows of the year in the coming sessions.
S&P
From this week’s low of 1093.80 to the recent high of 1109.20 is a lot of ground
in the current fundamental condition. In other words, the S&P is vulnerable to a
setback, with first support and a near term target, is seen down at 1102.00.
Support from Google earnings gives the market an early lift but we suspect that
the optimism will wane as the session extends. Aggressive traders might consider
getting short the December S&P at 1107.70 but one should use a tight stop of
1109.40.
FOREIGN EXCHANGE
US DOLLAR
While the Dollar is oversold, we are not sure what
fundamental argument one would suddenly use to forecast a reversal in the down
trend in the Dollar. In fact, with energy prices remaining within striking
distance of all time highs and energy experts predicting $60 crude oil, it would
seem like the Dollar down trend is entrenched. The US economic report slate is
empty, with the only positive this morning coming from favorable tech stock
earnings news in the US. If there is a bounce in the Dollar today, it would
probably come from shorts banking some profits, especially when one considers
that the December Dollar has fallen from a mid month high of 88.72 to 85.98 in a
very short period of time. One might also argue that some of the numbers
Thursday were positive from the US, but we are not sure that the markets even
care about the numbers. Short covering in the Dollar should be limited to 86.45
unless something surprising is seen.
EURO
While the Euro is considerably overbought, the
numbers from the Euro zone earlier this week partially justify some of the
gains. Overnight a -0.6% decline in August Industrial orders could be considered
a negative, but that number is somewhat old. Therefore, we suspect that the
December Euro will respect support of 126.00
YEN
The Yen has managed an upside breakout this week and
so far the threat of lost exports to the US hasn’t undermined the Japanese
economy. In the near term we suspect that the December Yen will manage to
respect support of 93.00. However, we are not sure that the December Yen is
going to manage a continued direct and continued rise to the next target of
94.00 without a little consolidation effort.
SWISS
While the flight to quality issue might be in a
slight lull this morning, we have to think that the Swiss is poised for even
more gains, once the short term overbought condition is corrected. Near term
support comes in at 82.03 and that is probably a buy zone.
BRITISH POUND
The Pound is significantly overbought and apparently
losing some momentum. However, the trend is up but the market could easily slide
back to 181.04 and still be good.
CANADIAN DOLLAR
A massive upward pulse overnight failed to hold and
that gives off the illusion of a failed auction rally. However, the trend in the
Canadian is still up, even if volatility is expected to expand. Bottom of the up
trend channel comes in today at 79.60.
METALS
OVERNIGHT
London Gold Fix $422.40 -$3.10 LME COPPER
STOCKS 82,975 metric tons -1,050 tons COMEX Gold stocks 5.304 ml Unchanged COMEX
Silver stocks 105.0 ml Unchanged
GOLD
While the Dollar is higher the move isn’t convincing
enough to seriously undermine gold. However, given the run up in gold this week,
we suspect that the market needs a little profit taking. The bull camp might
also fear the magnitude of the small spec and fund long in the COT report that
will be released after the close today.
SILVER
With gold in a weak pattern, we suspect that silver
will also be under some pressure. However, we fear more significant liquidation
pressure in silver than in gold, partly because of the physical demand track and
partially because gold seems to be garnering more support from the Dollar and
the trade deficit situation. In other words, dire economic slowing drags on
silver, whereas an economic debacle might actually cause gold to rise.
PLATINUM
Trading platinum from the long side in the near
term, will be walking a thin line between significant upside potential and
significant downside risk. Platinum will certainly rise in sync with gold in the
event that the Dollar falls sharply and a financial panic unfolds. On the other
hand, ever higher energy prices could flip the world economy into back a
recession and that could easily send platinum prices back away from historically
high pricing.
COPPER
Surprisingly the copper market managed an upside
breakout yesterday and did so in the face of mixed economic readings and talk of
increased production from Chile in 2004 and 2005. Shanghai copper stocks showed
another increase of 2,909 tons for the week and that could be considered a
negative. One has to give the bulls credit, as they seem to have put the massive
washout behind and are now capable of pushing prices up against a tide of
selling.
CRUDE COMPLEX
Once again the crude oil market managed to forge
a fresh round of new highs and did so without the benefit of a specific fresh
supply threat. In fact, the market rallied in the face of what could have been
considered negative information from OPEC. OPEC suggested that their most recent
4 week crude export cycle resulted in another 40,000 barrel per day expansion
and that follows the prior four week cycle expansion of 130,000 barrels per day.
NATURAL GAS
The weekly inventory report showed an injection of
64 bcf, which in turn managed to narrow the annual surplus figure to 157 bcf
from the prior reading of 178 bcf. The current inventories stand 7.4% above the
5 year average, which wouldn’t seem to insinuate a severe shortage, but the
natural gas market is playing off the potential winter shortage threat in
heating oil and is also being lifted by the threat of switch over buying from
utilities and large commercial entities. Since September 16th, natural gas
prices have soared from $5.93 to $8.88 but most of that is justified by the Gulf
of Mexico debacle.