Futures Point To A Flat Open
11/30/2004
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INTEREST RATES
The Treasury market is certainly feeling the heat
of long term liquidation off the currency rotation threat. Since the Treasury
market came under liquidation over the prior two sessions and was not confronted
with ultra favorable economic information in those sessions, it is clear that
something other than the usual economic ebb and flow is dominating prices. Some
suggest that heavy issuance is behind the weakness, but we also have to think
that negative comments from a well known Bond fund manager (Gross) have
contributed to some of the selling.
STOCK INDICES
The negative international economic dialogue
seems to be weighing on the market this morning, as the OECD, the Euro zone and
the Bank of Japan all expressed concern for near term growth and that means that
US companies will see softer demand for their products overseas. On the other
hand, it would seem like US economic information today will be upbeat,
especially the Consumer Confidence reading, which should have been able to draft
off of the post election euphoria rally in the stock market over the first half
of November. In looking back at conditions in early November, it should be noted
that the Dow managed a 590 point rally and the S&P managed a rally from 1130 to
1191! Therefore, one would certainly think that sentiment was riding high for
most of the month of November.
DOW
While we don’t like the current technical setup, we suspect that the market will
soon find support. Typically the Dow sees a 2 or 3 day correction against a
defined trend and that would leave us expecting some sort of bottom in the
action today. However, we would be extremely disappointed with the market in the
event that prices fail to shake off the weakness into the close today. In order
to turn the short term trend back up, the December Dow must regain 10,478 today
on a close basis.
S&P
We suspect that the December S&P will be able to respect the pattern of higher
lows and that means that the market must avoid a trade below 1166.50 today. In
order to turn the trend up, the December S&P must manage a close above 1177.50
today. Trend line support comes in at 1173.20 today.
FOREIGN EXCHANGE
US DOLLAR
Despite some comments from an ECB official that
could have discouraged weakness in the Dollar, the Dollar comes into the action
this morning right into new low ground. Even in the face of rather disappointing
Euro zone and OECD economic projections and possibly into mostly favorable US
economic information, it would not seem like the market is willing to give the
Dollar the slightest benefit of the doubt. Therefore, the Dollar looks set to
slide unless the US numbers are ultra strong and even then we are not sure that
anything will change with respect to the trend. In fact, nothing short of clear
cut intervention looks to threaten the shorts in the Dollar, as the ECB official
expressed dismay over the Dollar weakness, but clearly stopped short in offering
any solution. As we have said before, the job of the futures market is to draw
out intervention when intervention is suspected. More contract lows in the
Dollar.
EURO
While the Euro might slow its ascent in the face of
strong US data today, we don’t get the sense that the Euro will see a wave of
selling in the wake of the US news. Since the OECD cut growth in the US, Euro
zone and Japan it would seem that all things remain the same and that status quo
is to be extended. Aggressive traders might consider buying the December Euro at
132.28 and looking to use a tight stop for the coming 36 hours.
YEN
While the Japanese stock market continues to fear
the net impact of the rising Yen on export business, it would not seem like the
trade is willing to draw a line in the sand with respect to BOJ intervention.
The Yen is exhibiting rather significant volatility and could fall down to 96.76
and still be positive on the charts. Therefore, assume that the trend is up and
that the Yen will be able to forge another new high before intervention is
actually noted.
SWISS
The pattern of rising bottoms confirms the uptrend
pattern and with the Dollar already into new low ground early in the session, it
would seem like flight to quality concerns will continue even in the face of
favorable US economic readings. Therefore, the path of least resistance is
pointing upward.
BRITISH POUND
The Pound is already into new highs for the move
this morning and is doing so in the face of comments from the BOE that UK GDP is
going to come in lower than expected and that UK housing prices are expected to
fluctuate wildly. In short, negative macro economic news means nothing to those
buying the Pound.
CANADIAN DOLLAR
The violent back and forth action in the Canadian is
expected to continue but we can’t rule out a surge into new high ground and then
some sort of major blow off top!
METALS
OVERNIGHT
London Gold Fix $452.00 +$1.60 LME COPPER
STOCKS 59,975 metric tons +675 tons COMEX Gold stocks 5.373 ml Unchanged COMEX
SILVER stocks 102.8 ml Unchanged
GOLD
The gold market comes into the session today with
the understanding that the market managed to post another new all time record
spec and fund long as of last Tuesday. Around the highs yesterday the gold
market was $7 above the level where the COT report was measured and that might
mean that the net spec and fund long reached 231,000 contracts. For the gold to
see record longs in both the fund and small spec categories simultaneously, the
small specs would have to add 15,000 contracts to their net long.
SILVER
The silver market also comes into the action today
aware that the fund long in the COT has posted a new record high. The silver
market remains in an upward bias but with silver prices sitting 25 cents above
last weeks lows, it is short term overbought on the charts. The top of the old
up trend channel comes in at $7.86, with the bottom of the up trend channel seen
down at $7.61.
PLATINUM
A series of higher highs in platinum would seem to
suggest that some players see value in current prices. Fortunately the platinum
market is the least overbought of the precious metals and could be seen as an
alternative buy for new longs in the near term. However, once January platinum
reaches $880 the market will need something significantly important to propagate
the upside action.
COPPER
The copper market is into a little correction this
morning following what appears to be an overdone probe yesterday. In a minor
negative, India reported an increase in April through October copper output but
that story was ignored in China as futures there ended higher on the session.
Apparently the recent bid for WMC is being considered inadequate and that could
foster a bidding war for the Australian mining concern, which in turn could be
indirectly supportive for copper prices.
CRUDE COMPLEX
The energy complex showed a two sided trade
Monday, despite coming into the session with knowledge of a weekend disruption
of North Sea production. Apparently the market was quick to embrace the negative
dialogue flowing from the natural gas market, where traders were suggesting that
last week’s ultra bullish weekly inventory reading might have been in error.
Also dampening sentiment Monday were projections that the oil market might be
seeing a 2 million barrel per day surplus flow of oil.
NATURAL GAS
As suggested before, we think that part of the
weakness Monday was a simple give-back of the overdone rally from last
Wednesday. It seems that the trade thinks a big revision is in order to the
weekly inventory readings, but it is clear that the annual surplus is shrinking
and that natural gas prices continue to hold a significantly cheaper BTU
pricing, than either crude or heating oil. Therefore, on a break down to $7.40
in the March contract, position traders should consider re-entering long
positions.