Futures Point To A Flat Open
2/14/2005
INTEREST RATES
The Treasury market remains near the lows last
week but is showing a little support around the 115-23 level in March bonds and
at 115-00 in June bonds. The US economic report slate will remain thin for most
of this week, but will gather momentum as the week progresses. In contrast to
last week, the Treasury market this week will see a much softer US Dollar and
that could rekindle talk about US intervention, which in turn might be
supportive to US Treasuries.
STOCK INDICES
After last week’s strong upward thrust it would
seem like the market is somewhat overbought. It would also seem like outside
market influences are somewhat more negative than they were last week, with
energy prices higher, the Dollar softer and the trade looking a little more
skeptical at merger activities. On the other hand, the earnings flow generally
seems to be supportive, while the economic information flow is hardly sending a
definitive message on the direction of the economy.
DOW
One has to be careful attacking the Dow from the short side, as it has managed
to lead the market for most of the last three weeks. Critical near term pivot
point support in the March Dow comes in at 10,799, and with the market already
right on that critical support point in the early going today, we have to wonder
if a bigger corrective move is already underway. Near term downside targeting
comes in at 10,740.
S&P
Since we think that the S&P will lead the entire market on the downside, a
decline to critical support of 1202.00 in the March S&P might be seen early
today. Trend line support in the March S&P comes in at 1196.45, but that is a
long way down for a mostly quiet market!
FOREIGN EXCHANGE
US DOLLAR
A big range down in the Dollar would seem to target
a slide all the way down to a channel line at 83.52. With insurgent activity
flaring up in Iraq over the weekend, oil prices rising and US numbers failing to
impress over the last week, we think that the weakness in the Dollar is
justified. In looking at the coming scheduled report slate, it would not seem
like there will be enough bullish information to alter the downside tilt in the
Dollar. However, with both US stocks and Treasuries weak, it is possible that
the Dollar will come under more pressure than the market would expect,
especially with a large portion of the trade expecting mostly calm conditions.
In other words, the bears control and with little in the way of near term
technical support, we suspect that the Dollar will quickly slide down toward the
bottom of the January consolidation lows around 83.00.
EURO
The Euro has already mounted a significant upward
thrust in the early action today and until the down trend channel line is tested
up at 130.46, we suspect that the market is poised for even more gains. With the
US position in Iraq potentially deteriorating and recent US economic numbers
failing to impress the trade, it would seem like a wave of buyers are moving
back into the long side of the Euro. Near term, upside targeting in the March
Euro comes in at 131.00.
YEN
A sharp upside breakout comes in the face of
somewhat disappointing Industrial output readings from Japan overnight. However,
with the Nikkei managing to put a favorable spin on the Japanese economic
outlook, we would not be surprised to see the March Yen manage a rise up to
96.00 in the coming sessions.
SWISS
The Swiss reversal is pretty significant overnight
and now we suspect that the market is headed back to the top of the down trend
channel up at 83.65. In fact, given the ease in regaining the down trend channel
line, we would not be surprised to see the March Swiss manage a rise this week
to 84.20.
BRITISH POUND
A massive range up trade comes in the face of a
contractionary January UK PPI reading and that suggests that the current pace of
economic activity is not the main driving force in the currency markets.
Therefore, we suspect that the March Pound will hold a near term targeting of
188.90.
CANADIAN DOLLAR
A massive breakout up in the Canadian would seem to
target a rise to 82.00 and possibly even 82.23 in the coming week. With the
Canadian coming off an oversold condition around the February low, one should
not underestimate the magnitude of the near term upside probe.
METALS
OVERNIGHT
London Gold Fix $422.80 +$5.75 LME COPPER
STOCKS 55,450 metric tons +1,225 tons COMEX Gold stocks 5.916 ml -96 oz COMEX
SILVER stocks 102.0 ml Unchanged
GOLD
After seeing the small spec and fund long in gold
drop by 19,000 contracts, to a much more balanced 67,000 contract long, we
suspect that the market is poised for a return to the $430.00 level. Apparently
the negatives seen early last week have been forgotten or downplayed and with
the Dollar streaking to the downside early this morning, we suspect that the
$430 targeting will be managed in the very near term. While the IMF gold sale
threat continues to be a negative story, it would seem like market is putting
that issue on the back shelf until we are closer to the actual meeting later
this spring.
SILVER
The silver continues to add to last week’s gains and
is at times leading the entire metals complex. However, it certainly helps
silver to see the gold market as an asset instead of a liability, especially
since gold dampened silver action early last week. The weekly COT report showed
the net spec and fund long to be 49,000 contracts but that was a decline of
3,000 contracts from the prior week’s reading.
PLATINUM
Given the strength in the gold and silver markets
and the return to normal activity in Asia, we suspect the funds and small specs
will push platinum prices back up toward the recent highs. The net spec and fund
long in platinum comes in at 4,400 and with the April contract almost $20 above
the level where the COT report was measured, we suspect that the market is
quickly moving toward an overbought condition. However, we can’t argue against a
rise back to $880 before the market tops.
COPPER
Another big increase in daily LME copper stocks
slightly tempers the bull tilt in copper. However, with the precious metals in
favor and the Chinese coming back from an extended holiday, we suspect that the
bull camp will control prices. The weekly COT report showed the net spec and
fund long to be only 20,000 contracts and that should leave the market with
plenty of buying capacity.
CRUDE COMPLEX
While the upward thrust in energy prices last
week was mostly inspired by improved demand projections, we suspect that the
tightening of US product inventories and the tough dialogue being fired toward
Iran have also given the market an additional lift. While the market has
downplayed the bullish IEA forecast because they somewhat conflict with those
put out by US agencies the market still seems to favor the bull tilt.
Nonetheless it is clear that the market is poised to accept favorable demand
forecasts and with the world economy recovering but not necessarily operating at
a brisk pace (with the exception of China) it would not be irrational to expect
energy demand to gradually rise in 2005.
NATURAL GAS
The pattern of lower highs continues to undermine
natural gas. We also think that mild weather continues to undermine natural gas
and with the tail end of the North American winter, not expected to alter slack
demand patterns it might take something significantly surprising from the
regular energy complex just to pull natural gas out of its weakened structure.
On the other hand, seeing nearby natural gas prices down in the late summer
consolidation zone of $5.90 to $6.10 has to put some long term position players
into action.