Futures Point To A Flat Open
2/3/2005
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INTEREST RATES
While Treasury prices have slid a little off the
recent highs, that is too be expected considering the events of the last three
sessions. However, we don’t get the sense that the market is that vulnerable
into the coming monthly payroll report. In fact, we suspect that a large break
in Treasury prices over the coming 48 hours will still be viewed as a buying
opportunity.
STOCK INDICES
The near trend is up but the market has now come a
long way in short period of time. We suspect that corporate earnings reports out
just ahead of the opening today will provide another positive spin and with the
market mostly discounting the rate hike yesterday, it is clear that market
sentiment still prefers the bull case. However, the Japanese stock market seemed
to show signs of being overbought overnight and we suspect that the monthly US
employment report will bring about some anxiety.
DOW
Using normal retracement measures off
the December high to January low move, would suggest that the March Dow could
manage a rise to the 50% retracement point of 10,627 before a top is seen. On
the other hand, a close back below 10,569 today could set the stage for a slide
to 10,473 on Friday. Therefore, in the coming 24 hours, a temporary rise to
10,635 could still be seen. On a rise to 10,635, the longs should be happy with
the magnitude of recent long gains and bank profits.
S&P
Traders should note that the
S&P has already managed to rise above the 50% retracement level off the
December high to January low move and that is a bullish indication. Therefore,
we can’t rule out an upside extension in the March S&P to the 1197.50 quasi
double top zone. In fact, we suspect that the market will be free to claw higher
into the Friday morning payroll report, which could easily meet expectations and
in the process give the market a little more upside action. However, in the
event that prices rise aggressively into the payroll report, we would strongly
suggest that the bulls take profits ahead of the weekend G7 meeting.
FOREIGN EXCHANGE
US DOLLAR
size=2>The coiling pattern in the Dollar is only minimally tilted to the upside.
We suspect that the residual of the coming US economic report flow will barely
be enough to foster minor gains in the Dollar over the coming hours. However,
since the Dollar didn’t get a defined lift from the move to hike US interest
rates yesterday, we now think that the US payroll report will have to come in
above expectations to result in an upside Dollar breakout ahead of the weekend.
However, we fear that the weekend G7 meeting will bring about a multitude of
complaints on the US budget deficit, especially with the US looking to take on
Social Security reform. In other words, most traders might simply assume that
changing Social Security will in the short term, add to the US deficit
situation, instead of repair it! We are also disappointed that a favorable Iraqi
election outcome failed to lift the Dollar out of the current consolidation.
While we remain bullish toward the Dollar, our patience will begin to wane
quickly if the weekend G7 meeting fails to provide a bullish surprise. In fact,
give the expectation for deficit jawboning; it would seem to be quite a feat for
the Dollar to open sharply higher next Monday.
EURO
Net/net
the economic information from the Euro zone this week was negative to the
currency but yet the market wasn’t that concerned with the obvious deterioration
in the Euro zone economy. In other words, with the US numbers mostly supportive
to the Dollar and Euro zone numbers mostly negative to the Euro, the Euro has
still managed to hold within the tight coiling pattern. We still think that the
Euro is poised to breakout to the downside but we will begin to abandon that
view in the event that we don’t get satisfaction by the close Monday. Go with a
breakout of a 129.93 and 130.82 in the March Euro.
YEN
Once
again the Yen managed a quasi downside breakout but we have to wonder if a big
break in the Yen will be reversed sometime in the coming three sessions.
Japanese stock prices are showing signs of being overbought and that might allow
for a slide in the Yen to the 96 level. On a break to the 96.00 level we suggest
that traders step in and buy a March Yen 97 call for 80.
SWISS
The
path of least resistance in the Swiss is down and unlike the Euro, which is
putting up a good front on the charts, the Swiss continues to head to even lower
levels. In fact, we suspect that the Swiss is headed down below the 83.00 level
by early next week.
BRITISH POUND
size=2>The Pound remains poised to breakout to the upside. It seems that the
Pound is benefiting from the uncertain trends in the Dollar and Euro. However,
even with the bias pointing up, it would seem like the 188.69 level is extremely
formidable resistance.
CANADIAN DOLLAR
size=2>The near term bias is down but the March should at least find temporary
support at 80.32. In order to put the Canadian into a breakout down, the Dollar
will have to come into clear cut favor and we are not sure that is in the cards
today. As we suggested early this week, being short the Canadian around the
bottom of the last two months consolidation isn’t that attractive.
METALS
OVERNIGHT
size=2>London Gold Fix $419.80 -$1.35 LME COPPER STOCKS 49,575
metric tons +1,550 tons COMEX Gold stocks 5.980 ml Unchanged COMEX SILVER stocks
102.3 ml Unchanged
GOLD
As long
as April gold can manage to hold above $420 on a close basis, we suspect that
the gold market will avoid another stop loss selling binge similar to the
washout seen in late December and early January. In a negative note, it would
seem like there is movement on gold sales for debt relief from the IMF and that
could put an additional pressure on gold prices. While a major Brokerage firm is
positive toward cash gold at current prices, it would seem like prices will
continue to waffle around the lower end of the last month’s consolidation
pattern.
SILVER
So
far silver has managed to respect close-in support of $6.72 but we still can’t
rule out a slide back to $6.62. With both platinum and copper showing signs of
weakness late yesterday, it would seem like the macro economic tilt has shifted
a little bit toward the bear camp. While we doubt that March silver will need to
slide all the way down to $6.50, we can’t rule that out in the wake of ongoing
sloppy action in the gold market.
PLATINUM
size=2>Platinum continues to forge a pattern of higher lows and would seem to be
managing the current uptrend with less than stellar Asian physical demand
dialogue. Critical trend line support in April platinum comes in at $871 today,
with the top of the pattern seen up at $884. Talk that a palladium project in
Finland might not be undertaken because the palladium price is thought to be too
cheap, could begin to provide support to palladium prices.
COPPER
The
copper market has forged a lower low this morning in the early action and with
Chinese copper prices lower and the holidays quickly approaching, we suspect
that prices will remain under pressure. For the second day in a row, LME copper
stocks have increased moderately and while that is by no means a trend, we
suspect that adds an additional negative element to the market equation. There
have been Press reports over the last two days suggesting that the Chinese have
been banking profits on longs and that could accentuate the downside action.
CRUDE COMPLEX
The energy complex faded away from the recent highs
in the wake of the weekly inventory reports, even though the reports weren’t
that telling. While some might suggest that the decline in distillate stocks was
supportive, the large increases in both the API and DOE gasoline stocks readings
should have been more than enough to countervail the bullish distillate news.
The crude stocks change was simply insignificant, but analysis of current stock
levels in both gasoline and heating oil stocks (versus year ago levels) leaves
the net impact of the report bearish in our opinion, and apparently bearish in
the markets opinion.
NATURAL GAS
size=2>Surprisingly the natural gas market continues to show favorable action
despite the general weakness in the regular energy complex. Even more surprising
is the fact that the natural gas managed a higher trade in the face of the
mostly bearish inventory data from the API. As if the bear tilt off the
inventory report wasn’t enough bearish news, it would also seem like the weather
will remain bearish into next week.