Futures Point To A Flat Open
4/25/2005
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INTEREST RATES
After some moderate weakness last week the
Treasury market seems to have righted the ship and enters the new week in a
mostly positive stance. However, the recovery in Treasuries on Friday was mostly
driven by weakness in equity prices and possibly because of the resurgent
strength in oil prices. What strikes us in reading the Financial Press over the
weekend is that a number of US manufacturing companies are poised to see credit
downgrades, which would seem to hint at more slowing ahead.
STOCK INDICES
While the stock market showed the ability to hold
up around the surprise highs forged last week, we have trouble justifying the
rally last week. While some might suggest that the earnings reports justified
the recovery, we have trouble extrapolating past conditions into the future. In
fact, with oil prices returning to the highs and the US Congress failing to step
up and address the energy threat, we have to think that fresh buyers of stock
are presented with significant risk.
DOW
While the rally last week was certainly impressive, it was compacted and
possibly without sustainable fundamental justification. In the event that the
existing home sales readings this morning are contractionary, we would expect to
see the June Dow slide back toward last week’s lows. The April 19th Commitment
of Traders with Options report showed the Dow Jones Industrial Average
Non-Commercial position to be net short 3,535 contracts (up 1,032), while the
Non-reportable position was net long 4,219. Therefore, the spec contingent was
mostly flat prior to the rally last week, and as a result, the Dow probably
enters this week only slightly long. In short, the market isn’t particularly
vulnerable from a technical perspective. We see moderate resistance at 10,215
and little in the way of support until 10,137.
S&P
Critical pivot point support in the June S&P comes in at 1155.70 and solid
resistance is seen at 1160.00. The April 19th Commitment of Traders with Options
report showed the S&P 500 Stock Index Non-Commercial position to be net short
14,538 contracts, with the Non-reportable position net long 28,348 contracts. In
conclusion, the net spec and fund positioning was only moderately long heading
into the rally last week and therefore starts the current week out only
moderately long! Therefore, there would seem to be a little technical
vulnerability for the S&P. A trade below 1155.70 could mean a slide by mid week
to 1151.40, but only if the scheduled numbers are soft and energy prices remain
firm.
FOREIGN EXCHANGE
US DOLLAR
While the Dollar appeared to be on the rocks late
last week, it has certainly managed to right the ship into the opening today. We
suspect that comments from China about moving on their own timeline (with
respect to the currency floatation question) is partly responsible for the
bounce but we also think that weak Euro zone numbers added to the short covering
incentive. We see the Chinese dialogue this morning, as a clear rebuttal to the
Greenspan dialogue last week, which in no uncertain terms suggested that China
would have to move sooner rather than later. According to the Chinese, the US
President, the Treasury Secretary and the Federal Reserve Chairman all stepped
over the line and as a result, the Chinese look to avoid making any near term
changes. Therefore, the overnight bounce in the Dollar would seem to be the
direct result of Chinese currency dialogue. In other words, the Dollar is not
bouncing because the US economy looks any better, and probably isn’t getting
help from the decline in German business sentiment overnight. In short, we have
a short covering opportunity in the Dollar, but the Dollar should be restrained
by significant overhead resistance on the charts. Aggressive traders might get
short the June Dollar on a rise to 84.15.
EURO
Unfortunately for those long the Euro, off the
chance of a re-peg in the Chinese currency, there would appear to be a chance to
back and fill on the charts. Adding into the slight weakness this morning is the
fact that German April Ifo readings were much softer than expected and in some
cases were the worst readings in 16 months. Therefore, the Euro might be poised
to slide back toward the early April consolidation, which is located down around
129.55 and 128.41. While we hardly see the potential for a slide all the way
down to 128.41, a move back toward that trading range is possible, if US
earnings reports continue to divert attention away from the regularly scheduled
US economic reports. As suggested a number of times over the last month, the
Euro isn’t rising off its own accord, it rises when the trade is negative toward
US prospects.
YEN
While the Euro and Dollar are seeing action this
morning that would seem to downplay the chance of a Yuan change, the yen
continues to be supported by the long term idea that that the Chinese currency
will eventually float. In fact, with the Yen managing to return to the February
and March consolidation zone, we suspect that the Yen will attempt to strengthen
support around the 95.00 level with some sideways trade, at this new found
trading range. Unfortunately the June Yen has very little in the way of close-in
support on the charts and fresh longs might have to risk positions to at least
94.44.
SWISS
Given the severe technical violations overnight, the
slack economic readings in the Euro zone and the aborted potential for a near
term change in the Chinese currency situation, the Swiss is set for a return to
the early April consolidation zone down around 83.85 to 83.09 basis the June
contract. Traders might consider selling the September Swiss and buying three
September Swiss 87.50 calls for 130 for a long term position play. In the event
that the Swiss returns to the April lows, the short futures could serve to
finance a large portion of the extensive call premium in that strategy.
BRITISH POUND
The Pound has mostly held its recent gains, despite
the strength in the Dollar and that is a sign of ongoing strength in the Pound.
However, in the near term, we can’t rule out a slide to support down around
190.12 and a possibly temporary slide below 190.00. However, the overall trend
in the Pound remains up as long as trend channel line support is respected down
at 188.48 today and at 188.70 on Tuesday.
CANADIAN DOLLAR
While the general uptrend in the Canadian seems to
remain in place, the head of the market seems to have temporarily turned down.
We doubt that the June Canadian will see much in the way of solid buying until
the 80.45 level is encountered later this week. So far, we aren’t detecting much
impact on the Canadian from the Chinese currency situation and that is somewhat
surprising. On a decline to 80.20 we would consider a fresh long play in the
Canadian.
METALS
OVERNIGHT
London Gold Fix $433.00 -.40 LME COPPER
STOCKS 59,900 metric tons -775 tons COMEX Gold stocks 6.047 ml oz +59,895 oz
COMEX SILVER stocks 103.5 ml -2,008 oz
GOLD
After the overt weakness in the Dollar last week, it
would seem that the US Dollar has managed to bounce this morning and that has
started US gold out on a negative note. Even in the face of lower Harmony gold
production figures, the gold market still doesn’t seem to be influenced that
much by talk of lower gold production from a series of gold producers, which in
effect suggests that the gold market is still being driven by a weaker Dollar.
Harmony production in its third quarter showed a decline of roughly 112,000
ounces off a prior tally of 791,000 ounces and that certainly resulted in
Harmony stock coming under pressure.
SILVER
While silver seems to have a pattern of higher lows
and higher highs, the fund action has been a little fickle over the last week.
Top of the up trend channel in the July silver comes in at $7.419 today and at
$7.425 on Tuesday. The April 19th Commitment of Traders with Options report
showed the Silver Non-Commercial position to be net long 38,620 contracts, with
the Non-reportable position net long 23,278 contracts and that gives a combined
spec positioning of only 62,000 contracts.
PLATINUM
The platinum market gapped up sharply overnight and
despite giving up most of those gains, prices remain at the highest level since
March 18th. With global equity prices weak and a number of Wall Street
Economists calling for a top in commodities, we see current platinum prices as
extremely expensive. In fact, with the US/China discussions over floating
exchange rates expected to become more contentious, we see July platinum prices
around $880 as extremely expensive.
COPPER
As opposed to platinum this morning, the copper
market looks to open under some light technical pressure. We also suspect that
the macro economic outlook for copper is slightly undermined, as the trade sees
China inundated with pressure to float its currency and world equity markets
generally remain under pressure. We also see a number of critical US
manufacturers flirting with Junk ratings.
CRUDE COMPLEX
With the market extending back toward the old
highs last week, it is clear that the threat of rising crude supply is being
countervailed by the idea that US gasoline supplies will remain tight. While the
energy markets were lifted Friday by reports of an Iraqi pipeline attack, it
would seem that most of the gains off the April lows have come from pure
speculation on gasoline tightness. In other words, until Friday, there really
wasn’t a specific supply disruption on the $4.30 rally from the April lows.
NATURAL GAS
The BTU comparison with crude lifted natural gas out
of the mid April consolidation zone and now may result in a rally to $7.50 basis
the June contract. The April 19th Commitment of Traders with Options report
showed the Natural Gas Non-Commercial position to be net short 12,658 contracts,
with the Non-reportable position net long 44,596 contracts. Therefore, the net
spec long was only 32,000 contracts and that would seem to leave the market with
the ability to return to the mid March consolidation highs on minimally
supportive information.