Futures Point To A Flat Open
12/16/2004
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INTEREST RATES
The Treasury market appears to have managed the
sharp rise Wednesday, off the idea that foreign buyers have generally continued
to buy US Treasuries. In fact, both domestic and foreign buying of US Treasuries
is expected to continue and with the Treasury market managing a massive washout
in late November, off the idea that foreign buyers might be backing away from US
Treasuries, the recent action simply re-instills confidence in the bull camp.
When one considers that the Federal Reserve recently gave a very favorable low
inflation/low growth outlook for the US economy, it is not surprising that the
Treasuries rallied off the news flow this week.
STOCK INDICES
The stock market is certainly exhibiting periodic
profit taking action and with the anticipated expiration volatility of the
coming two sessions, we wouldn’t be surprised to see even more back and forth
trade. So far, Wall Street doesn’t seem to be too concerned about the recovery
in oil prices (crude has now rallied $4.20 off the recent low) but it might be
forced to pay attention to energy prices, if terrorism threats against Saudi
Arabia actually result in renewed attacks in that country. On the other hand,
the market generally did a good job of downplaying the rather dismal US Trade
Deficit reading and the 4 day slide in the US Dollar and that shows the bulls
are still lurking.
DOW
Considering the broad market action of the last 24 hours it is a little
surprising that the March Dow comes into the action this morning looking solid
on the charts. In fact, the March Dow is sitting right on its highs and seems to
be mostly insulated from the sloppy action in the lower tier sectors of the
market. Therefore, the trend remains up, but the Dow is limited by the rest of
the market. Near term critical support in the Dow is 10,672 but buying support
isn’t seen until 10,650.
S&P
In the June expiration, the market continued higher for two full weeks, while
the September expiration brought on a one day rally and then a 5 day slide in
prices and therefore one doesn’t have to assume that expirations always shake
out as a negative. Close-in support is seen at 1206.50, but fresh buying support
isn’t seen until down around 1202.50. The big trend is up, but the risk of fresh
longs at current levels is somewhat unattractive. Wait for a 1202 break to get
long.
FOREIGN EXCHANGE
US DOLLAR
While the recent Dollar bounce seemed to be
something significant from a fundamental perspective, it seems as if the trade
wants confirmation of a bottoming and will attempt to retest the contract lows.
In our opinion, fundamental change is beginning, but without ultra strong US
economic progress, it might be difficult to stop such a long term down trend in
quick fashion. The recent action in the Canadian gives us the resolve to look
for a bottom in the Dollar, but it is possible that the market attempts to pull
out intervention with a return to the lows in the Dollar. We might also note
that since the Dollar managed the recent bottom, crude oil prices have rebounded
$4.20 a barrel, the trade deficit expanded to another record and US holiday
sales have failed to provide the anticipated lift to the US economy. Therefore,
the Dollar is destined to fall back toward the lows, but it should have trouble
getting below the lows. We will probably look to enter long Dollar calls on a
return to 81.52 in the March Dollar.
EURO
With the trade expecting Italian GDP to come in at
1.4% for 2004, there is at best, a minor underpin for the Euro, as that growth
level is below the US growth rate and that growth isn’t expected to extend into
2005. Like the Dollar, we expect the Euro to attempt a return to the recent
highs, but we don’t think that the fundamental condition will support a strong
drive into new highs. We also think that intervention could flow on any new high
in the euro. Near term support in the March euro comes in at 132.62 and
resistance is seen at 134.44.
YEN
The Yen continues to get follow through buying off
the upside breakout of a minor consolidation pattern, but we doubt that the “big
picture trend” has shifted upward. However since there is almost nothing in the
way of resistance until the bottom of the late November early December
consolidation up at 97.36, the market might be able to extend recent gains. On
the other hand, we expect the Bank of Japan to be the first central bank to step
into the market, if the Dollar returns to its lows. On a bounce to 97.00, we
will probably recommend long June Yen puts.
SWISS
Since the Swiss has already returned to the Nov/Dec
consolidation, it would seem to have a lid over prices. However, seeing a close
above 88.14 might spark enough stop loss buying to send the Swiss quickly back
to the recent highs. Of all the currencies (with the exception of the Pound),
the Swiss seems to have the strongest chart pattern.
BRITISH POUND
With the pound soaring to a new high for the move
overnight on a retail sales reading of +0.6%, it is clear that even minimally
supportive fundamental information is going a long way. To find resistance on
the charts, one has to go back on the monthly charts to 1992 with highs of
199.20.
CANADIAN DOLLAR
While the US Dollar weakness is bailing out the
Canadian on a short term basis, the “big picture trend” is probably reassert
itself in a couple days. Two weeks ago we suggested that traders buy 2 June
Canadian 79 puts and traders should stay with that position in the face of a
potential 3-4 day bounce in the Canadian.
METALS
OVERNIGHT
London Gold Fix $441.25 +$3.45 LME COPPER
STOCKS 55,075 metric tons -350 tons COMEX Gold stocks 5.574 ml -2,443 oz COMEX
SILVER stocks 104.5 ml +654,839 oz
GOLD
The overnight action showed some bullish resolve, as
the trade saw selling dry up at lower levels and buyers were not adverse to
paying up for fresh positions. Chinese gold prices were higher on what Dow Jones
news termed to be aggressive buying and that should keep the bullish tilt in
place into the US opening. While the story on declining South African gold
production was floated yesterday, the residual impact of that story continues to
support prices off the theme that supply will remain tight into the future.
SILVER
Unlike gold, the silver market has hardly made a
dent in recapturing the 50% retracement point from the December washout and that
leaves a partially negative technical tone in place. About the only positive
from the technical front in silver, is that both volume and open interest
declined sharply during the December break but the question is just how much of
the record spec long was extracted during the $1.00 washout and will those
washed out longs return? In the near term, the outlook on the economy just
doesn’t look strong enough to see silver rise off the hope for physical demand
and the leadership from gold is positive but inconsistent. Therefore, a light
upward bias is seen but it would not be a positive for March silver to fall back
below $6.80.
PLATINUM
Surprisingly the platinum market is showing the
strongest price action of the last two sessions and with the recent trade and
close above the critical $840 pivot point, it would seem like the market is
headed into a new range of trade that is bound by $840 and $860. However,
neither volume nor open interest is supporting the recovery action off the
December low.
COPPER
There would appear to be no stopping the copper
market, as overnight the market has flashed upward again. Chinese copper prices
were sharply higher as recent shorts have decided that the upward pressure of
prices is too much to withstand. Therefore, it would seem like copper prices are
headed back to the contract highs.
CRUDE COMPLEX
The magnitude of the rally Wednesday was somewhat
shocking when one considers that the inventory reports showed a minimal decline
in crude imports and a moderate decline in distillate stocks at the API. The
bull camp was certainly helped by a recent series of bullish developments like,
the actual OPEC production cut promise, the fact that OPEC seemed to be cutting
in advance of the December 10th production cut, cold weather in the US, a net
spec short position in the heating oil futures and lastly what appears to be a
much more intense pattern of violence in Iraq. We also think that comments from
Iran about fully complying with the recent OPEC decree fueled the short
covering/fresh buying binge.
NATURAL GAS
The natural gas has come a long way in a short
period of time and it is possible that the high of $7.429 manages to hold,
unless there is a surprisingly large decline in inventories today. It would seem
like cold weather continues to hang around with Chicago seeing projections of a
13 degree low for Saturday and a 10 degree low for Sunday. In other words, the
demand function looks to remain supportive but we are not sure if the natural
gas will manage a rise directly through the late November consolidation pattern
without some real strong leadership from the regular energy complex.