Futures Point To A Flat Open
3/7/2005
INTEREST RATES
In retrospect the moderately large net spec and
fund short in the bond market of 50,000 contracts justifies the sharp short
covering bounce in US Treasuries. In fact, following the COT report mark off,
the market managed another full point decline before it eventually bottomed and
that certainly expanded the net spec short position significantly before the
turnaround on Friday. While the Treasury market might have additional short
covering capacity in the near term, we are not inclined to chase the bounce to
levels above the late February consolidation highs around 113-22 in the June
bonds and to 110-18 in June Notes.
STOCK INDICES
While the stock market might eventually stumble
off the concern for rising energy prices, the market has certainly done an
excellent job of discounting that threat and focusing on the positives. In fact,
with some economists already hinting at the potential for an upward revision in
1st quarter 2005 growth projections, there is the potential that the equity
market could continue to mostly discount the energy market threat. On the other
hand, the Treasury market has rebounded significantly since the lows Friday, off
the idea that the recent payroll report still shows an economy that is
vulnerable.
DOW
While the Dow futures are certainly sitting at another net record spec and fund
long positioning around the overnight highs, we are not sure that the market is
overly concerned. In fact, with the big cap stocks paying a lot of attention to
the price of oil and oil prices softer this morning, it is possible that the Dow
returns to the overnight highs, in the early action today. On the other hand,
seeing the March Dow fall back below the critical pivot point at 10,956 into mid
session, might suggests a temporary profit taking before resuming the upside
trek. A logical correction point in the March Dow is 10,872.
S&P
Despite the big run up last Friday, the S&P is really sitting in a pretty
favorable technical position. In fact, the recent COT report showed the net spec
and fund long in the S&P to be only 20,000 contracts and that is a long way from
the typical overbought level of 100,000 contracts. The bias is up but the market
is certainly short term overbought. A logical correction point in the March S&P
comes in at the old high of 1221.20 but we doubt that the market is primed for
that big of a corrective setback.
FOREIGN EXCHANGE
US DOLLAR
The Dollar shows that it can’t get a positive shake
from the economic report front, as the non farm payrolls last Friday morning
looked extremely impressive relative to competing currencies, but in the end the
US must post out of this world numbers just to offset the twin deficit threat.
In fact, even in the wake of news that several economists might be set to
upwardly revise early 2005 US growth rates, it would not seem like the market is
going to look toward the Dollar with any more favor. In fact, overnight it would
seem like more big names are increasing their short bets on the Dollar, with
Warren Buffett apparently pushing on the Dollar and making comments in an annual
report about the US trade deficit problem negatively influencing the Dollar for
years to come. While soaring energy prices might also have pressured the Dollar
last week it would seem like that direct pressure will abate temporarily this
morning. All in all, the path of least resistance in the Dollar is pointing down
but we are not inclined to project a March Dollar decline below near term chart
support of 82.38.
EURO
Despite the Dollars failure to rally off its recent
payroll reading the Euro really hasn’t taken advantage. In fact, we continue to
see stories of concern for the Euro zone economy and that could keep the Euro
below near term chart resistance of 132.70. Therefore, aggressive traders might
consider getting short the Euro at 132.20, with a stop above 132.82.
YEN
The BOJ undermines the Yen slightly overnight by
suggesting that easy money policies would remain in place as long as inflation
rates were contractionary. Near term support in the Yen comes in at 94.66 and we
would suspect that the Yen might slide until that level is retested.
SWISS
A pattern of lower highs remains in place in the
Swiss and that could mean a slide in the Swiss to 84.74. Near term resistance in
the Swiss comes in at 85.70.
BRITISH POUND
The Pound seemed to run into a brick wall at 192.50
and we suspect that the March Pound will have to fall back to the 190.00 level
before another attempt is made to breakout to the upside. Near term pivot point
support comes in at 191.19.
CANADIAN DOLLAR
It is pretty disappointing that the Canadian failed
to climb above critical consolidation resistance at 81.50 and that leaves the
Canadian locked in a trading range of 81.50 to 80.00. In a bigger picture sense,
we still see the trend to be pointing down but the rate of decline in the trend
has become almost nothing.
METALS
OVERNIGHT
London Gold Fix $433.60 +$3.95 LME COPPER
STOCKS 51,150 metric tons +1,055 tons COMEX Gold stocks 5.911 ml oz unchanged
COMEX SILVER stocks 101.5 ml unchanged.
GOLD
Apparently the gold market sees the recent US
payroll report and rising energy prices as a positive as gold prices overnight
have managed a quasi new high for the move. With the Press talking up the idea
of significant increases in retail gasoline prices, the Dollar generally weak
and US payrolls rising, we would not be surprised to see the inflation element
played up a little more in the gold market. With Palladium prices also rising
sharply off speculative buying interest it is clear that spec players are
interested in a wider array of precious metals markets, than they were several
months ago.
SILVER
After an overnight spike up move was rejected, we
are only a little concerned about the 67,000 contract spec and fund long
position reported in the COT report. However, we suspect that May silver will
respect critical pivot point support down around $7.325. On the other hand,
those that are long May silver might have to risk positions to at least $7.23
and possibly to $7.21, as that is the bottom of the recent consolidation.
PLATINUM
With the Wall Street Journal trumpeting interest in
the palladium market, we suspect that platinum will hold up around the $875
upside breakout point on the charts. However, despite the generally favorable
tone toward the PGM and the precious metals markets in general, we get the sense
that platinum has the ability to run back to new highs but that the market won’t
be able to sustain those gains for long. In fact, we suspect that the historical
differential between platinum and palladium prices is set to haunt the platinum
market.
COPPER
While copper prices did manage a new contract high
early last week, the steep washout last week partially tempers bullish
sentiment. On the other hand, a strong US payroll reading and the potential for
upward revisions in US growth projections for 2005 are positive underpins. With
Shanghai copper stocks last week declining by 3,224 tons and the Chinese
overnight market action today showing some strength, we have to think that the
bias in copper prices continues to point up.
CRUDE COMPLEX
We doubt the high volatility in the energy
complex seen last week will end any time soon. World production capacity
restraints will keep fears of tightening supplies, as a persistent bullish force
in this market. Even the EIA is fanning market fears as they warned last Friday
that world petroleum inventories in the OECD, which were measured at 51 days
worth of demand in December, could tighten into the spring and leave the
marketplace vulnerable to even minor supply glitches.
NATURAL GAS
Natural gas prices basically treaded water for most
of last week as the strength in the rest of the energy complex combined with the
latest weather forecast calling for a colder March was able to offset a bearish
EIA storage report. Year ago stock levels widened to a 415 bcf surplus tally and
it is highly questionable whether the next four weeks of draw downs will be deep
enough to make much of a dent in supplies before the spring demand slow down
sets in. While daily technical indicators are at over bought levels, the buying
trend of the fund trader, who reduced their net short position by over 20,000
contracts is impressive and indicates the market has been finding solid buying
support from this sector on breaks.