Futures Point To A Flat Open
4/18/2005
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INTEREST RATES
The outlook for the US and Global economies
continues to deteriorate, despite the ongoing slide in energy prices. In other
words, the market is assuming that ultra high oil prices have already dampened
or tripped up growth and that would seem to leave Treasuries in an upward
motion. As we suggested last week, the Treasuries are probably headed back to
the February consolidation highs.
STOCK INDICES
The overnight chart says it all, as the market
appears to be streaking toward the October 2004 lows. With economic confidence
disintegrating, the Fed holding its foot on the brakes and the market uncaring
about the ongoing slide in oil prices, it would seem like more significant
declines are ahead. Despite nearby crude oil prices coming into the week a full
$8.27 below the April highs, it would seem like the damage to the economy has
already taken place.
DOW
The Dow futures gapped lower overnight and that would seem to suggest that the
market is primed for a steep slide this week. In fact, we suspect that the June
Dow is headed to the October 2004 low of 9,754. The April 12th Commitment of
Traders with Options report showed a nearly flat spec and fund positioning,
which means that the market only recently shifted into a partially oversold
condition around the middle of last week. Therefore, even in the face of a
favorable earnings report here and there, we doubt that this market will be
capable of shutting off the selling, without a big downside extension. Maybe, an
additional $3 or $4 break in crude oil prices will soften the blow, but we doubt
that a sharp decline in oil prices is capable of turning overall sentiment
around.
S&P
The June S&P would appear to be headed down to the 1120 to 1100 zone, with the
macro economic outlook severely injured. The April 12th Commitment of Traders
with Options report showed the S&P Non-Commercial position net short 15,761
contracts, but the Non-reportable position to still be net long 24,079 contracts
and that would seem to allow for even more selling in the coming sessions. In
order to turn this market around, something significant will be needed in the
headlines and even then, stock prices might have go ahead and forge a decline
significantly below the 1120.00 level just to attract bargain hunting buying.
Minimal support might be seen at 1125.80 but the rate of decline is so
aggressive that minor tech support points can hardly be expected to dampen the
decline.
FOREIGN EXCHANGE
US DOLLAR
So far, the G7 has decided to take the Jimmy Carter
stern rhetoric approach to the Chinese currency situation. In other words, the
G7 is apparently content to posture and in the process allow a continuation of
the status quo. In the near term, the Dollar would seem to be weaker as a result
of the weekend meeting, but we don’t get the sense that the trade is preparing
for a sustained change. On the other hand, it would not be surprising to suggest
that the Dollar is falling because of its own slumping fundamentals. While the
Fed will probably surprise the trade with its ongoing intention to maintain the
pattern of steady rate hikes, many might assume that the deteriorating economy
is going to derail the prospect of even higher rates ahead. Over the last month,
the prospect of perpetually higher US interest rates, was the primary driving
force behind strength in the Dollar. Therefore, the Dollar sees a number of
factors capable of driving prices down. Near term downside targeting comes in at
83.95 but an even greater slide to 83.50 might be ahead.
EURO
After forging a quasi double bottom late last week,
the Euro would seem to be poised to return to the April highs around 130.80. In
the end, the Euro is going to win by default, or it is going to gain favor
because the outlook toward the US is at least temporarily more negative than the
outlook for the Euro zone. In conclusion, the outlook for US inflation is no
longer a restraining issue and that could allow the June Euro to rise above the
recent pattern of lower highs. Some suggest that the June Euro might be headed
to the down trend channel resistance line, that comes off the December 2004 and
March 2005 highs but that point (134.14) is a little too optimistic in our
opinion.
YEN
While the Japanese continue to wage a war of words
with the Chinese, we don’t think that the flap will deter the Yen from forging
some upside gains this week. Given that the market is assuming a psychological
drift toward a floating Yuan, we suspect that more minor gains are ahead in the
Yen. However, until the June Yen manages to forge a rise above the down trend
channel line of 93.69, we assume that part of the negative tilt remains in place
in the Yen. In the near term, a minor rise is to be expected but it could take
at least a couple closes above the 94.00 level, to effectively alter the
downtrend pattern.
SWISS
The Swiss is generally leaning toward the upside, as
if some additional flight to quality buying is coming to the surface. With the
US economy possibly entering a period that could flirt with stagflation, we can
understand the Swiss coming into some temporary favor. Historically, the Swiss
has seen more benefit from inflationary conditions as opposed to deflationary
conditions. Critical resistance comes in at 84.40 and then again up at 84.54.
BRITISH POUND
A clear upside breakout is underway in the Pound,
with the top of the channel now seen up at 190.20. As we suggested last week,
the Pound appeared to have to the most positive technical and fundamental setup,
of all the currencies and given the softness in the Dollar today and the
indecision in the Euro, we would not be surprised to see the Pound return to the
early March consolidation zone up at 190.27 to 192.06.
CANADIAN DOLLAR
Like the Dollar, the Canadian Dollar sees some light
selling pressure off the weekend G7 dialogue. Also like the Dollar, the Canadian
sees a slumping economic outlook and the added pressure of some political
anxiety. Therefore, a slide to the February low of 79.52 would seem to be in
order for the coming week.
METALS
OVERNIGHT
London Gold Fix $425.65 +$2.15 LME COPPER
STOCKS 52,350 metric tons +225 tons COMEX Gold stocks 5.95 ml oz -150,308 oz
COMEX SILVER stocks 102.7 ml +737,749 oz
GOLD
The gold market would seem to start the current week
out in a slightly more positive posture, even if the indirect affect from the
equity markets and the view of the economy remains negative. With the Dollar
weak and possibly falling toward critical 84.00 pivot point support, we suspect
that gold will attempt to migrate toward the upper end of the last two weeks
consolidation zone. Apparently the IMF Gold sales issue was effectively stalled
and the net result of the G7 meeting appears to be insignificant.
SILVER
Surprisingly the silver market made a lower low for
the move overnight and did so in the face of Dollar weakness and gold strength.
However, as we suggested in the gold comment, the macro economic condition is
certainly a potential undermine for all the metals. The April 12th Commitment of
Traders with Options report showed the Silver Non-Commercial position to be net
long 37,553, with the Non-reportable position net long 23,268 contracts.
PLATINUM
Big declines in Asian stock markets would seem to
leave the platinum market in a slightly downward track. Near term downside
targeting in July platinum is seen at $857 and possibly even to the bottom of
the March consolidation at $851 in the event that world equity market declines
accelerate.
The April 12th Commitment of Traders with Options report showed the Platinum
Non-Commercial position to be net long 3,934 contracts, with the Non-reportable
position net long 1,237 contracts and that produces a net spec long position of
5,100 contracts, which is an overbought and vulnerable positioning in the
current macro economic condition. Like gold and silver, platinum should also see
some selling pressure off outside market developments.
COPPER
While copper showed the ability to recoil away from
the spike lows last week, we are not convinced that the liquidation is finished.
In fact, with world equity markets under ongoing pressure and the macro economic
outlook deteriorating, we suspect that a return to the recent lows is likely.
While Chinese copper prices were slightly higher overnight and the Dollar is
weaker, it would seem like the bears have more ammunition than the bulls.
CRUDE COMPLEX
While the negative dialogue from OPEC continues,
we do get the sense that the rate of descent in prices will slow somewhat.
However, in looking at the most recent COT report readings, the net spec and
fund long position in crude oil was still fairly large at a little over 105,000
contracts, but that position was pared down by 32,000 contracts in the April 5th
through 12th time frame. With the market dropping 32,000 contracts in a $3.57
break in crude oil, in the prior week, we would estimate the current spec long
position to be roughly 90,000 contracts at the start of this week.
NATURAL GAS
Since the regular energy complex looks to remain in
partial downward track, we suspect that natural gas will also remain under
pressure. While the even numbered $7.00 level looks to be decent support, it
would not be surprising to see the June contract slide down to at least the
consolidation support zone of $6.85. The April 12th Commitment of Traders with
Options report showed the Natural Gas Non-Commercial position to be net short
3,253 contracts with the Non-reportable (presumably small specs) still net long
35,808 contracts and that means the market is still capable of more long
liquidation.