Futures Point To A Flat Open
12/14/2004
INTEREST RATES
The Treasury market just isn’t tracking scheduled
economic information, but it does seem to be getting periodic support off the
anticipation of intervention. In other words, it seems like the US Treasury
market is getting some buying support from the idea that the Chinese are
supporting the Dollar and in turn are purchasing US Treasuries. Even more
surprisingly, the Treasury market is managing to rise in the face of what
appears to be swelling issuance of junk bonds.
STOCK INDICES
Quite simply merger activity is providing the
market with an excuse to rally. However, with many analysts suggesting that the
growing interest in mergers is a symptom of improving forward economic views,
it’s understandable that fund managers are moving in with buy orders. We also
think that some fund managers are being pulled into the market because of the
fear of missing out on a late year ending rally.
DOW
The March Dow clearly charged through 10,600 and would now seem to be headed to
the 2004 highs of 10,727 on the weekly charts. In short, the bulls control
unless the fundamentals track provides a negative surprise today.
S&P
With the S&P already charging above the 2004 highs, the next upside target comes
in at 1205 and then again up at 1215. Near term critical support in the March
S&P comes in at 1192.70.
FOREIGN EXCHANGE
US DOLLAR
The Dollar failed to hold several key support levels
yesterday and that seemed to foster stop loss selling from some recent longs.
Certainly US economic information has failed to help the new found bull camp in
the Dollar and with the US poised to release another dismal trade deficit
reading this morning, we have to think that the bears will have a distinct edge
early in the action today. However, the trade is kicking around rumors that the
Chinese are supporting the Dollar, and that has mitigated the breakdown in
prices. Following the trade deficit release, we suspect that the March Dollar
will slide down to critical pivot point support of 81.98. However, we would give
the bull case a chance until after the FOMC meeting but the failure to close the
March Dollar above 82.04 would be extremely disappointing and could suggest that
a return to the recent lows is in the cards.
EURO
The Euro has recoiled away from the recent lows in
anticipation that the recent washout was a temporary technical event and not
some change of trend. We suspect that Euro zone numbers will serve to dampen
further Euro gains, but a trade above 133.70 could be a technical sign that the
old bull market is back in place. Right now, the Euro is set to follow the
direction of the Dollar and the slate of information from the US today is
certainly enough to prompt a major decision in the Dollar.
YEN
The Yen looks to remain vulnerable, especially with
many traders expecting the coming Tankan survey Wednesday morning to show more
weakness at the corporate level. In other words, the slackening economic outlook
for Japan, should serve to take the wind out of the Yen’s sails. Furthermore,
with the magnitude of the December break in the Yen, we have to think that the
market is wounded and that the Dollar will really have to stumble to rekindle
the upside track in the Yen. On the other hand, a close back above 96.35 today
would begin to change our bearish view toward the Yen.
SWISS
A pattern of lower highs in the Swiss suggests that
the near term trend is pointing down. In fact, unless the US trade deficit
readings this morning actually create anxiety, we will assume that the trend in
the Swiss is still pointing down.
BRITISH POUND
The Pound seems to be poised for a minor rise but
the March contract will encounter an extremely critical pivot point at 191.75. A
slight rise in UK CPI provides the Pound with an outside lift and until the
Pound reaches 192.96 there might be little in the way of resistance.
CANADIAN DOLLAR
With the Canadian unable to mount gains in the face
of Dollar weakness and the market holding just above extremely critical chart
support, one might expect to see a major decision today. In order to turn the
near term down-trend around, the March Canadian might have to mount a rise back
above 82.02 today.
METALS
OVERNIGHT
London Gold Fix $438.60 +$2.65 LME COPPER
STOCKS 54,850 metric tons -475 tons COMEX Gold stocks 5.577 ml -2,636 oz COMEX
SILVER stocks 103.2 ml -156,968 oz
GOLD
The gold market surprised the trade with an
impressive rally Monday, but it was clear that the second wave of the rally was
fostered almost exclusively by the slide in the Dollar. Some traders are
concerned that the US rate hike might boost the Dollar and in the process
undermine gold but the rate hike has been widely expected and we see very little
reaction to the move today. News that Chinese buying is supporting the Dollar,
is an issue that is currently discouraging gold buyers from re-entering the
fray.
SILVER
While the silver market will follow gold today, we
suspect that continued merger activity on Wall Street, a slightly weaker Dollar
and minor gains in gold will provide silver with solid buying support. We
suspect that March silver will attempt to return to levels above $7.00 in the
coming sessions, with critical support in March silver coming in at $6.80 and
then again down at $6.375.
PLATINUM
The January platinum continues to have trouble
climbing above critical resistance at $840, but the market has shown that prices
down around $820 were a little too cheap for current market conditions. However,
the $840 level should be considered the middle of the current and rather wide
trading range. At least into the end of the year, we have to think that platinum
prices will be held down by lackluster economic expectations and continued slack
Chinese activity.
COPPER
Chinese copper futures were higher overnight but
early US action has held below the rather surprising high posted on Monday.
Apparently the copper market isn’t that concerned with physical supply and
demand information, as prices basically ignored the projected 10% rise in
Australian copper production and this morning the market is also mostly ignoring
a 20% increase in November Chinese copper production. Chinese copper production
in November reached 190,600 metric tons which is a significant tally.
CRUDE COMPLEX
While the energy complex initially showed
strength on Monday off the expectation of colder weather, prices were also
supported by the fact that the small spec and fund positioning was net short in
heating oil. However, with the market picking up on the idea Monday morning,
that some OPEC producers might have started reducing production well ahead of
the December 10th meeting, prices managed a significant upward thrust. In the
end, the market was unable to hold the majority of the gains and that is a sign
of weakness.
NATURAL GAS
The natural gas market seems to have turned the
corner and with the upward extension Monday and the colder weather ahead, we
would not be surprised to see prices forge a return to the $7.50 consolidation
level basis the March contract. While colder weather is ahead we are still
concerned about the residual ramifications of the early mild weather and its
potential impact on the upcoming weekly inventory readings. Initial resistance
should be seen at $7.39 and then again up at $7.67.