Futures Point To A Flat Open
3/14/2005
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INTEREST RATES
The biggest problem for the bull camp in
Treasuries isn’t isolating the main bear focus, but more appropriately is
managing the broad number of forces pressing on prices. In addition to extremely
bearish comments from the US Fed last week regarding the surprising relationship
between long yields and short term yields, the Treasury market is also being
confronted by rising inflation fears, a sagging US Dollar and at times, talk of
improved US economic activity. The Wall Street Journal credit section this
morning has fund managers suggesting they will hold off buying Notes until
yields rise above 5%, and with the recent Note yield sitting at 4.55% there
would seem to be more downside in prices.
STOCK INDICES
The stock market continues to see more negative
news than positive. With the Fed seemingly surprised that long term rates aren’t
significantly higher and energy prices becoming a constant problem, it is clear
that investors are backing away from the market. At times, it seems like the Dow
is fixated on rising above the critical 11,000 level but then the headline flow
seems to constantly undermine sentiment.
DOW
While the June Dow showed a net spec and fund long of 20,000 contracts in the
last COT report the Dow has declined another 153 points and that should
drastically reduce the vulnerability of the market. However, we are not sure
that the June Dow is going to be able to hold above the psychological support
level of 10,800 early this week. In fact, unless oil prices weaken, we suspect
that the June Dow is headed for a 10,773 trade.
S&P
Trend line support in the June S&P comes in at 1203.60 today but we have to
think that the bear camp retains an edge. In fact, unless energy prices soften,
the outlook for the economy and the US Dollar improves, we suspect that the June
S&P has the potential to slide down to 1196.60 early this week. On the other
hand, seeing the June S&P manage to hold above 1203.00 throughout the session
today, might discourage the bears and begin to firm up support under the market.
FOREIGN EXCHANGE
US DOLLAR
Surprisingly the Dollar is showing signs of a
technical reversal overnight, as the fundamental track would not seem to be that
bullish. Certainly the market is oversold and certainly some are concerned that
the US numbers are running so much above the Euro zone, but that didn’t stop the
Dollar from making a significant March slide. In the short term, we can’t rule
out a technical bounce back above the 82.00 level but we also think that
recoveries in the Dollar will simply be an opportunity for those that want to
rotate away from US assets, the ability to salvage some value. We doubt that the
early economic report schedule this week is set to boost the Dollar
significantly, but the ability to trade consistently above the recent
consolidation high of 81.74 might prompt a wave of technical short covering
buying in the Dollar. Right now, the main hope of the bull camp in the Dollar is
that technicals are allowed to dominate over the fundamentals.
EURO
The Euro appears to have made a double top at 135.10
and would seem to have thin support around 134.23 and considering the magnitude
of the rise since the February lows, one can’t rule out aggressive profit
taking. We still think that the majority of the buying in the Euro is coming on
patently negative US developments and not as a result of a real desire to hold
Euros. In the near term, a setback to 134.00 could be easy and a slide down to
133.73 would not be a shock but that type of break should level short term techs
and leave the market poised for a near term low on the charts.
YEN
A massive slide in the Yen overnight would seem to
leave the Yen poised for even more losses. It is possible that the Yen is being
held accountable to its reliance on foreign oil, as the concern for high oil
prices seems to have pressured some Japanese stocks overnight. Therefore, the
path of least resistance is pointing down and the Yen might not find support
until 95.66.
SWISS
The flight to quality impetus is lacking and the
Swiss has also left a quasi double top on the charts. Therefore, the potential
for a large profit taking slide is high. Near term downside targeting comes in
at 86.36 but a slide to 85.89 can’t be ruled out.
BRITISH POUND
The Pound seems to have lost its bull tilt that has
been in place since early February. In fact, with the Pound bordering on a trend
channel failure and seeing a hot PPI report of +.4% for February overnight, it
is possible that the market is going to extract some value from the Pound. In
other words, the market is almost punishing any currency in a posture to hike
interest rates and slow growth! Near term downside targeting comes in at 190.34.
CANADIAN DOLLAR
Given the consolidation bound by 83.43 and 82.60 and
the inability to sustain gains off favorable domestic economic information last
week, it would seem like the Canadian is poised for a correction. Near term
downside targeting and an extremely important pivot point is seen down at 82.45
early this week!
METALS
OVERNIGHT
London Gold Fix $442.75 +$1.80 LME COPPER
STOCKS 49,875 metric tons -700 tons COMEX Gold stocks 5.913 ml oz -1,993 oz
COMEX SILVER stocks 101.4 ml unchanged.
GOLD
Despite the impressive performance last week in
gold, the market looks to start the new week out on a soft tone. In addition to
the reversal in the currency markets, the gold market is also confronted with
the realization that the March rise in prices resulted in a 20,000 contract week
over week spec and fund long expansion. However, the market is certainly not
completely overbought with the net spec and fund combined long standing at only
143,000 contracts.
SILVER
The silver comes into the action this morning just
above critical chart support on the charts and possibly undermined by the early
US gold market action. The silver market also saw its spec and fund long
position expand by 4,100 contracts and that position sits at 70,000 contracts.
Recent history suggests that an extreme overbought spec and fund long position
in silver is 90,000 contracts, which means that silver is partially overbought
but certainly not without additional buying capacity.
PLATINUM
In looking at the July platinum contract today, it
would seem that close in support stands at $865 but a washout to $860 should not
be ruled out, especially in the event that gold leads the precious metals
complex lower. In fact, until the July contract manages a close back above the
$876 consolidation high level we are convinced that a top has formed already.
However, as long as July platinum remains above the $870 level, we suspect that
the bull camp will retain a very minor edge.
COPPER
The copper market has managed to partially reject
the rather aggressive washout last Friday but with the net spec and fund long
sitting at 42,000 contracts the market is about to move into an overbought
condition. On the other hand, in order to post a record spec and fund long,
copper would have to see another 15,000 contracts added to the current long
position. However, with Chinese copper prices were down overnight and that could
leave the market vulnerable to more profit taking action.
CRUDE COMPLEX
The action Friday would seem to balance the
recently overbought technical condition of the energy complex. However, it would
not seem like OPEC is poised to alter the production scheme and that could leave
the bull camp with a distinct advantage. In fact, when one considers that crude
oil prices have managed to rally almost $15.00 a barrel since the first of the
year and the market is about to enter the slack North American seasonal demand
period, one has to expect significant price volatility ahead.
NATURAL GAS
While the regular energy complex might have the
wherewithal to continue higher, we suspect that natural gas will become
vulnerable to more moderate weather ahead. According to the COT report, the
small spec long in natural gas has exploded into uncharted waters with a 47,000
contract long! In other words, this market is wound out and only a surprise
extension of the cold in the east or a sudden burst of industrial agricultural
buying looks to be capable of pushing prices back above the March highs.
Certainly new highs in crude oil would give the natural gas a big lift, but the
risk and reward of being long from current levels is really unattractive.