Futures Point To A Flat Open
12/30/2004
INTEREST RATES
The Treasury market showed some signs of a
failure yesterday and when one considers the recent feeble short covering rally
attempt, it would seem like the bear camp retains a slight edge. In fact, with a
much more active economic report slate today, it would not be a good development
for the bull camp to see a series of stronger than expected economic readings.
However, the pattern of the economic numbers over the past couple months, has
been such that one might expect part of the numbers today to be countervailing.STOCK INDICES
While the stock market would seem to be short
term overbought and vulnerable to profit taking and year end book squaring, it
is possible that the bull trend continues to control prices today. While many
international equity markets are now closed for the extended holiday, the US
stock exchanges will be open Friday and that could mean that the bulls attempt
to run prices for at least another session. It is our opinion that the stock
market was cheated out of a more significant rally yesterday, as energy prices
forged the strongest rally in seven sessions, despite seeing patently bearish
weekly inventory data.DOW
The trend is up unless the market manages a trade back below 10,830 early. With
the market open again on Friday, we see no reason for the trade to stop the bull
train but it would certainly help the large Cap stocks to see a salient decline
in energy prices and a decent sweep of numbers from the US early this morning.
Near term upside targeting in the March Dow comes in at 10,889.S&P
While the March S&P did manage to take out the triple top price of 1216.70
yesterday, the market continues to flirt with that area today and that area
should become support instead of resistance. On the other hand, we doubt that
the market will behave well into the close, if prices haven’t managed to extend
the rally early in the session. Near term upside targeting in the Mar S&P comes
in at 1220.10.FOREIGN EXCHANGE
US DOLLAR
While the Dollar really forged an impressive
response to trade rumors that intervention wasn’t expected soon, it has managed
a series of higher lows. However, the Dollar will have to prove beyond a doubt
that it has turned the corner. Some might suggest that the nearly conclusive
bearish opinion toward the Dollar, is a sign that it is near a bottom. On the
other hand, there is significant professional money behind the bear trend and
that positioning won’t be discouraged easily. In fact, until the US numbers are
undeniably strong and the US economy is feeding off its own momentum, we doubt
that the Dollar is going to transition into a bull trend. In the short term, the
March Dollar continues to see the 81.00 level as a critical pivot point.
Unfortunately we doubt that the US economic numbers today will be strong enough
to help the Dollar, but it is possible that significant declines in energy
prices serves to help the Dollar slightly. Until the Dollar manages a close
above near term down trend channel lines at 81.56, the short term trend remains
down.EURO
The Euro sits just under a triple top pattern of
136.56 and with the Italian Finance Minister overnight suggesting that the
current Dollar exchange rate versus the Euro is extremely worrying and that
should limit the Euro today. However, it would not seem like the Minister was
prepared to support any specific action against the Dollar slide. We continue to
hold long put positions in the Euro, because the risk of being short futures is
unacceptable and we are not sure that the timing of a top is that imminent. Go
with a breakout of a 136.60 and 135.95.YEN
With economic hopes soaring in Japan and in the
process pushing up equity prices, we suspect that the Yen is underpinned. In
fact, we suspect that near term support at 96.32 will hold up the Yen in the
action today. In conclusion, unless the US numbers this morning come in ultra
strong, the Yen should forge a narrow trading range. We did note the extreme
weakness in the Yen yesterday relative to other currencies and that potentially
increases the risk to the long camp today.SWISS
Like the Euro, the Swiss is hovering just below a
triple top pattern and would seem to have lost some momentum. However, as long
as the March Swiss manages to hold above the critical pivot point of 88.22 we
don’t expect to see fireworks today.BRITISH POUND
The wide broadening top pattern continues in the
Pound and the loss of momentum should be causing the long camp some concern.
However, we doubt that the market will see the information today to spark a
definitive move, unless the US numbers surprise or energy prices fall
significantly and the US stock market blows into new high ground.CANADIAN DOLLAR
The technical action in the Canadian is very
impressive and it would now seem like the March Canadian has the ability to
climb back to the 83.00 level. We suspect that the Canadian is making gains
against other currencies besides the Dollar, but that is in turn helping to puff
up the Canadian against the Dollar. About the only thing the bears can stand on,
is that the gains are coming off very low volume. In short, the near term trend
is up and more gains are expected today.METALS
OVERNIGHT
London Gold Fix $435.15 -$6.10 LME COPPER
STOCKS 49,375 metric tons -875 tons COMEX Gold stocks 5.792 ml +201,227 oz COMEX
SILVER stocks 104.2 ml +105,385 ozGOLD
A combination of developments Wednesday led to a
stop loss selling binge but the most important driving force was the action in
the Dollar. While some might suggest that a 30-40 tick rise in the Dollar Index
isn’t that significant of a move, when one considers the dialogue that preceded
the dive in gold prices, the action Wednesday becomes much more significant. In
other words, for the Dollar to avoid a massive slide and then to actually mount
an impressive rally, even though the trade was playing down the intervention
threat, is quite a significant event.SILVER
The silver market also managed a rather aggressive
slide yesterday but in the end it still was able to maintain a pattern of higher
lows. In the short term, silver will pay attention to the action in gold but we
also think that ongoing optimism toward the economy will manage to keep silver
prices in a light upward track. However, it would not be a positive for March
silver to trade back below the prior day’s low of $6.80 as that could spark
additional year end book squaring.PLATINUM
Since the platinum market has shown some very wild
action of late and the rest of the metals markets have experienced aggressive
profit taking or year end book squaring, we can’t rule out a more significant
dive in platinum prices. Critical near term support comes in at $860 and $858
and if those levels fail to hold, the market could quickly slide all the way
down to the consolidation lows at $843.COPPER
With Chinese copper prices failing to offer a
definitive direction overnight, we have to think that the bears have a slight
edge in the action today. However, unlike the precious metals, the copper market
continues to see rather tight stock conditions, with the LME stocks falling
below the psychologically important 50,000 ton level overnight. Those that are
long should consider running tight stops around 143.20, or even picking a point
just above the market and exiting ahead of the extended weekend closure.CRUDE COMPLEX
The energy complex surprised the trade with a
rally in the face of weekly inventory readings yesterday that weren’t
necessarily bullish. Initially the Press suggested that prices were rallying
because of the decline in crude oil stocks but the declines were miniscule and
when one considers the 32.6 million barrel API crude stocks surplus to last
years levels, it would not seem like the crude oil stats were behind the rally.
We also see the sharp rise in the API refinery operating rate as a bearish
development, as that would seem to make it easier to get products into the right
position.NATURAL GAS
The natural gas market also managed to bounce
Wednesday and had to do so off short covering and the positive leadership from
the regular energy complex. However, unless temps in the US come in below normal
and are accompanied by colder future forecasts, we doubt that the market will be
able to extend the upside significantly. However, unlike the regular energy
complex, it is possible that the weekly inventory readings this morning show a
big enough draw (140 bcf) to force some shorts from position.