Futures Point To A Flat Open
4/14/2005
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INTEREST RATES
The Treasury market seemed to fade off the
slightly disappointing Treasury auction on Wednesday, but it is also possible
that the market was simply a little overdone from the recent run up in prices.
Certainly the US retail sales report provided the impetus to rally yesterday
morning, but we have to think that the macro economic inclination to rally
Treasuries is being curtailed by the persistent declines in energy prices. With
the first wave of auction action coming off, with only tepid interest and a
large portion of the spec and fund short balanced by the 2 point rally off the
early April low, we see the market in a technical balance.
STOCK INDICES
While some traders are surprised that the stock
market hasn’t been able to benefit from the slide in oil prices, the retail
sales report’s dismal result yesterday certainly prompted many to fret over the
idea that ultra high oil prices have already slowed the economy and in the
process have dampened earnings and profit potentials. While the decline in oil
prices is potentially beneficial, the market apparently wants to see a period of
sustained lower prices, before it considers the future outlook to be improved.
It was also clear that energy stocks were leading the decline yesterday, and
that made the decline yesterday look a lot worse than it really was in a broad
market sense.
DOW
Coming into the action this morning, the June Dow is managing to hold above
critical support of 10,419 and might be able to hold that level, if there isn’t
a patently negative reading from the scheduled numbers. If the Dow weren’t right
on critical support (off a six month old consolidation pattern) we would think
that the market would continue to dribble lower, but a failure to hold above
10,395 in the June Dow futures and 10,368 in the Dow Jones Industrial Average,
could really kick off some big picture technical selling. Traders should
therefore expect a downside breakout in the June futures but until the cash
market fails down at the critical 10,368 level, we would not panic.
S&P
While this might sound like a broken record, the S&P usually doesn’t perform
well from a consolidation pattern that follows a big downward washout. In other
words, the most aggressive bottoming action seems to come from compacted,
concentrated selling that is rejected quickly. In other words, the best bottom
to buy (in our opinion) is one that comes off a massive selling effort that in
effect reaches a crescendo. Currently we don’t see the rational for a massive
additional slide, but it would not be difficult to envision a weak slide to the
late March consolidation lows of 1170.80.
FOREIGN EXCHANGE
US DOLLAR
The fickle action in the Dollar continues, with the
Dollar rising back toward the recent highs in the face of slightly better Euro
zone economic readings overnight. The Dollar seems to be getting a slight lift
from the expectation that the weekend IMF or G7 meeting will provide some
discussions on the Chinese currency issue. The Press is suggesting that little
progress on a floating Chinese currency has been made and that is correct, with
the Chinese content to stall and reap the benefits of artificial exchange rates.
However, considering the ongoing political battle between China and Japan, it is
possible that the US gets a little more support in the coming discussions. In
the near term, the US Dollar is partially held back by the slack economic track
of its economy but part of that undermine, is countervailed by the recent slide
in energy prices. In short, the Dollar acts like it wants to rally into the
weekend meeting but given past history, we are not sure that progress will be
made on the Chinese currency float. It might not be difficult for the Dollar to
rise to 85.09 but we are skeptical of prices above that level.
EURO
The euro zone growth figures for the 1st and 2nd
quarters are not exactly impressive but they do show positive growth and the
readings were accompanied by modest price gains in Italy. Therefore, the macro
economic view toward the Euro isn’t negative but it isn’t something that will
foster buying of the currency. The euro seems to be headed down to consolidation
support of 128.22 but we are not sure that a downside breakout will be forged,
unless the market speculates on the weekend meetings and is eventually forced to
reverse the slide early next week. There really isn’t a dominating force in the
Euro, but the path of least resistance is pointing down slightly.
YEN
The Yen ran out of gas as we expected and with the
flap between Japan and China, one might expect the Japanese to take a harder
stance against its Asian trading partner in the coming meetings. In the near
term, we see a return to the consolidation lows down around 92.62, especially
since the recent bounce was for reasons other than solid growth or future
prospects for higher yields in Japan. In short, we are bearish until the June
Yen manages a rise back above 93.40.
SWISS
The Swiss would seem to have the most negative chart
setup of the Forex markets. In fact, we see little support in the June Swiss
until 82.69 but in order to throw the Swiss all the way down to the February
lows of 82.16, we would probably have to see the Dollar forge an upside
breakout. Right now, we just don’t see the rational for a sharp upward extension
in the Dollar and in turn a big slide in the Swiss, unless that comes off some
misguided speculation on the weekend meetings.
BRITISH POUND
The sharp reversal in the Pound overnight is
startling and could result in a bigger technical wash than the fundamentals
would seem to grant. Therefore, a slide to 186.94 can’t be ruled out, but at
this point we are not inclined to abandon the bull track in the Pound. To a
large degree, there really isn’t a dominating trend and that leaves the market
subject to back and forth action.
CANADIAN DOLLAR
The Canadian has a negative chart setup and with the
BOC recently suggesting that rates are on hold, one can come to the conclusion
that the Canadian economic is slowing or at least is under the threat of
slowing. It is also possible that a slight increase in political uncertainty
contributes to some liquidation, but the political issues might not be a clear
negative. We see little to stop the June Canadian from a slide down to 80.40.
METALS
OVERNIGHT
London Gold Fix $427.20 -$1.65 LME COPPER
STOCKS 51,325 metric tons +1,475 tons COMEX Gold stocks 6.11 ml oz +2,540 oz
COMEX SILVER stocks 101.7 ml -308,361 oz
GOLD
We were really impressed with the action in gold and
silver on Wednesday, as both markets managed to rally in the face of non
descript Dollar action and perhaps more importantly, in the face of sharp
declines in equity prices. In other words, the precious metals seemed to be
tracking a fresh course, which is good because the old course of tracking the
Dollar was extremely difficult, given that the Dollar really hasn’t presented a
clear trend. We do think that gold will have a difficult time forging
significant gains in the face of persistent equity market weakness and a poor
view toward the economy.
SILVER
Like gold, the silver market continues to forge a
pattern of higher lows but the silver market has to be a little undermined by
the slackening macro economic view. Surprisingly the sharp continued decline in
oil prices isn’t being embraced as a positive for the economy and therefore the
silver market is forced to prove that it can hold the consistent gains made off
the late March low. Critical trend line support in the May silver comes in at
$7.08 today, while the top of the trend comes in up at $7.336.
PLATINUM
The coiling pattern continues but surprisingly the
platinum market has managed to shrug off the same fundamentals that have applied
pressure to copper and in the process the platinum market has remained near the
upside breakout point on the charts. However, even though we are against buying
platinum at current levels, we concede that platinum has tighter fundamentals
that any of the precious metals and even tighter than copper. In fact, one has
to assume that platinum supply remains tight, until proven otherwise.
COPPER
The copper market continued to extend the recent
washout in the overnight action. Certainly the decay in the macro economic
outlook in the US is part of the equation and we also suspect that small spec
and fund selling is accentuating the slide. While some might suggest that the
rise in LME copper stocks recently is insignificant, we have been pointing out
the change in that daily trend for at least a month.
CRUDE COMPLEX
The energy complex continued to slide yesterday
despite the fact that Venezuela was attempting to round up enough support to
kill any OPEC move to provide more supply in the coming weeks. We suspect that
the magnitude of the recent slide in prices effectively kills the prospect of an
OPEC hike in the production ceiling in the coming 4 weeks. The weekly inventory
stats were mostly bearish as EIA crude stocks rose 3.7 million barrels and are
now 25.8 million barrels above year ago stock levels and are 2.4 million barrels
above the 13 year average.
NATURAL GAS
With natural gas prices adjusting downward in sync
with crude oil prices and the June contract falling below the pre-winter highs,
we have to think that the market is getting closer to a fundamental value zone.
Coming into the weekly storage report, US Gas storage stands at 1,249 bcf, which
is 218 bcf above year ago stock levels and 191 bcf above the 11yr average. Over
the last 4 weeks, gas stocks have decreased by 225 bcf but we are now at the end
of the draw season.