Futures Point To A Flat Open
11/2/2004
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INTEREST RATES
The Treasury market is pretty much locked in
position ahead of the election. Recent economic numbers could have prompted a
rally but as the reports were coming in soft, the energy complex has continued
to decline and that has tempered the macro economic anxiety. In the end, lower
oil prices would seem to trump the recent sweep of mixed economic reports and
with the election dominating the news today, the Challenger Layoff report might
be mostly ignored.
STOCK INDICES
It would seem as if world equity prices are
coming into the US election with a little bit of positive momentum. Overnight
the Japanese stock market was moderately higher and the overnight US futures
action is showing signs of a positive opening. Certainly seeing nearby crude oil
prices hovering $5.67 below the recent high, is cause for some cheer, even if
recent US economic readings have been unimpressive.
DOW
Initial resistance is seen in the December Dow at 10,105 but Dow doesn’t
encounter a critical long term, down trend channel resistance line, until
10,167. Unfortunately the December Dow doesn’t have solid support until 10,000.
S&P
As long as oil prices are thought to be weakening, the market looks to be
capable of discounting the outcome of the US election. The December S&P has near
term resistance up at 1135.50 but doesn’t have real solid support until 1126.80.
Longs should probably stay long but one might consider selling a call and using
that money to buy a put against long futures positions.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is showing signs of an upside breakout
but we are not sure on what fundamental basis one would credit for that action.
Certainly there is the chance that the excessively negative battle being waged
in the Press will soon end and that the US economy won’t have to weather such
negative feelings. It is also likely that a $5.60 decline in crude oil prices
since the September high, is also taking some of the pressure off the Dollar. We
have to think that at least a portion of the big Dollar declines came because of
the ultra high price of oil but it will take another crude stock build on
Wednesday, just to begin to put a lid on the price of oil. In the near term, we
are really hesitant to buy the Dollar almost 75 points above the recent lows.
Even if oil prices remain well off their highs, it could take several post
election weeks before consumer sentiment benefits from the reduced energy cost
structure. Pushed into the market we would rather be a seller of the Dollar than
a buyer at current levels.
EURO
The Euro is showing signs of failing at critical
chart support. We have to think that the Euro is significantly overbought after
2 1/2 months of massive gains. Also keep in mind that a large portion of the
Euro gains over the last 2 months have come because of excessive negative
attitudes toward the US. With the passing of the election and slightly lower
energy prices, the Euro might lose consistent flight to quality benefits and
that might facilitate a slide back to 126. However, because we think the Euro
will weaken, doesn’t mean that we think the Dollar will get the majority of that
benefit.
YEN
The Yen rejected an overnight downside breakout on
the charts, but it is also rather overbought on the last month’s upside action.
However, we suspect that the 94.00 level is a fair value zone and that a decline
back toward 93.00 should be considered a long term buy zone.
SWISS
The Swiss has certainly seen a massive amount of
flight to quality buying over the last month. Therefore, the market is poised
for a major decision. A track below 82.89 today could be a very negative
development with a full washout to 82.00 possible in the event that the US
election has a winner by the opening Wednesday morning.
BRITISH POUND
The UK CBI reported some favorable retail sales
readings for October this morning and that could give the Pound a slight
advantage over the coming three sessions. The December Pound also has
significant consolidation support on the charts at 182.00, especially since
those UK economic numbers were supportive.
CANADIAN DOLLAR
The Canadian is already showing signs of weakness on
the charts and could easily see a decline to 81.00 without really damaging the
charts. Unfortunately the December Canadian doesn’t have channel, or trend line
support until 80.35, which is a long way down on the charts.
METALS
OVERNIGHT
London Gold Fix $425.10 -$3.00 LME COPPER
STOCKS 77,125 metric tons -800 tons COMEX Gold stocks 5.334 ml Unchanged COMEX
Silver stocks 104.6 ml Unchanged
GOLD
The gold market already appears to be in a
liquidation mode ahead of the US election but that attitude could change quickly
if it appears that the race is going to remain a dead heat. The weakness in
energy prices is contributing to the slide in gold prices and that may project a
slide down to $422.7 basis the December contract. Keep in mind, that the fund
and small spec long is massive and that with each passing chart failure, the
odds of a more significant washout increase.
SILVER
Trend line support today in December silver comes in
at $7.15 but slightly lower support might easily be tested down at $7.06. In the
near term, silver will be mostly influenced by gold and with energy prices soft
and the Dollar mostly higher, we can understand silver being under a slight bit
of pressure during the session today. We think fresh longs need to wait for a
correction down to $7.00 before getting long, especially over the coming 24 hour
period.
PLATINUM
The platinum market forged an aggressive downside
probe overnight but has managed to reject part of that weakness into the
opening. We have to think that the recent hike in Chinese interest rates and the
ongoing uncertainty off the US election will keep prices under pressure.
Therefore, we suspect that another test of the $820 level will be seen in the
January contract over the coming two or three sessions.
COPPER
While December copper has managed to hold above the
October consolidation low pattern, it can’t seem to get very far away from the
breakout point of 130.10. Chinese copper futures were mostly unchanged overnight
but there were some reports of Chinese buying. With continued declines in energy
prices we suspect that December copper will be able to respect support above 130
but in order to rekindle the upside track that was seen last Friday, the US
election has to be carried out without seeing a bitter legal battle.
CRUDE COMPLEX
The crude oil market posted another massive
trading range Monday but in the end the bear camp seemed to control the day.
Some traders suggested that a private forecast prompted the decline in prices,
as the private report suggested that OPEC was “really” determined to build
inventories in light crude oil and for a change, the market embraced that
speculation as an important negative development. It was also thought that court
action in Nigeria could prevent the National Union in Nigeria from striking and
that prompted some of the selling.
NATURAL GAS
The December natural gas would seem to have a
critical pivot point around $868.4 but the market is clearly finding it
difficult to maintain a positive slope in prices. Massive daily volatility would
seem to suggest that the bear camp is about to take the upper hand and with the
crude oil market showing persistent weakness, we also have to think that natural
gas is becoming more vulnerable. The lull between cooling demand and the ramping
up of heating use, should take some of the pressure off natural gas supplies and
therefore we suspect that recent anemic weekly injection rates are set to climb
back toward normal.