Futures Point To A Flat Open
5/16/2005
INTEREST RATES
Despite generally stronger than expected
regularly scheduled US readings last week, the Treasury market soared to new
highs for the move. Apparently the Treasury market thinks that the recent
numbers are not indicative of the real economic status. With more and more Press
outlets suggesting that even Asian economies are slowing, and with many players
thinking that the residual of ultra high oil prices, have actually slowed the
growth rate of the US economy, we are not surprised at the upside breakout.
STOCK INDICES
While the bull camp might take heart in the
ability to bounce off the lows last Friday, the market appears to be vulnerable
to lower near term action. In fact, it is very disappointing that the market
hasn’t been able to put a favorable spin on the sharp ongoing slide in oil
prices and the better than expected pattern of US economic numbers. Some traders
continue to point to the potential for a Hedge Fund contagion, while other
suggest that the recent improvement in the US Trade Balance is the result of
slowing in the US economy.
DOW
The charts hardly depict a positive setup in the Dow to start the week out.
The May 10th Commitment of Traders with Options report showed the Dow Jones
Industrial Average Non-Commercial position to be net long 5,371 contracts, with
the Non-reportable position also net long 2,393 contracts for a combined spec
long of 7,500 contracts. However, since the COT report was measured, the Dow has
declined another 100 points and that could leave the market with only minimal
addition long liquidation before a key bottom is forged. As mentioned before,
the sharp decline in energies and many base commodity inputs should be reducing
the cost structure of many large cap stocks and therefore this market is
starting to get some fundamental backing for a bottom. Critical trend line
support comes in today at 10,141 and our pick for a key low is 10,100.
S&P
Unfortunately for the June S&P, critical trend line support isn’t seen until
1146.30 today and at 1145.65 on Tuesday and that could facilitate more minor
declines ahead. The May 10th Commitment of Traders with Options report showed a
combined small spec and fund long position of less than 12,000 contracts and
with the break to the lows last week, we suspect that the spec long was
virtually balanced. We expect a coming bottoming, but the bottoming might not
manifest itself until after the second inflation report later this week.
Therefore, traders would be well advised to wait for a new low for the month,
before jumping into the market on the long side.
FOREIGN EXCHANGE
US DOLLAR
The trade continues to doubt the foundation of the
recent Dollar rally but with slowing economics showing up in Asia, significant
concern for the Italian economy and sharply declining oil prices, it would seem
like the US economy maintains some sort of edge. Some traders suggest that an
improving economy, with lower oil prices serves to increase the odds that the US
will be able to handle its soaring deficit problem and that is a major change of
sentiment that favors the bull camp in the Dollar. In fact, with the US Trade
numbers already turning better, the US Fed expected to continue attracting
capital with even higher interest rates and the sharp decline in most basic
commodity prices, it would stand to reason that any forward momentum in the US
economy could be accentuated in the months ahead. The most recent Commitment of
Traders with Options report showed the US Dollar Non-Commercial position net
long only 3,431 contracts, with the Non-reportable position net long only 1,129
contracts. Therefore, the Dollar was only modestly spec long last Tuesday and
that would seem to keep the Dollar from reaching an aggressively overbought
condition, as quickly as many might have expected given the recent run. Not
surprisingly, with better than expected US numbers and a trade that is still
expecting the US to continue hiking rates because of rising wage pressures, we
suspect that the Dollar will remain in the driver’s seat. Some analyst think
that the next upside target in the Dollar is the 90.00 level but we see initial
resistance at 87.20.
EURO
In looking at the week ahead, the Euro would seem to
be aggressively oversold but not necessarily capable of shutting off the
fundamental selling tilt. The May 10th Commitment of Traders with Options report
showed the Euro Non-Commercial position to be net short 1,569 contracts, while
the Non-reportable position was already net short 279 contracts. Therefore, the
Euro could easily get to a moderately oversold condition with a slide down to
weekly targeting of 124.51.
YEN
The yen surprisingly continues to decline despite
what many assume is a potsitive correlation to a rising Chinese currency.
However, fears of slackening growth in the Pacific Rim could be undermining the
Yen and sending it toward weekly consolidation support down at 92.50. In fact,
Japanese stocks were supposedly lower overnight because of fears toward the US
economy and that shows the market is still hunting for negative stories.
SWISS
The Swiss has minimal support from news that
consumer sentiment in that country increased slightly, as the main driving force
of the Swiss trade is the positive capital flow toward the US Dollar. With
weekly chart support violated, it would seem like the Swiss is headed down to
81.02.
BRITISH POUND
Continued signs of slowing housing prices in the UK
seem to facilitate the slide in the Pound, which has now violated significant
support levels on the charts. However, most of the slide in the Pound is the
result of capital flows to the US and not because of slackening perceptions
toward the UK economy. With the Pound below weekly chart support of 184.59, the
next downside target becomes 182.51.
CANADIAN DOLLAR
With the Canadian falling below critical support of
78.78 on the weekly charts, there would seem to be little to prevent a slide
down to 78.17. In fact, considering the broad based weakness in commodity
prices, the increased concern about slowing Asian growth and weakness in
Canadian manufacturing data there is little to prevent ongoing selling in the
Canadian Dollar.
METALS
OVERNIGHT
London Gold Fix $419.90 -$1.55 LME COPPER
STOCKS 55,050 metric tons
-875 tons COMEX Gold stocks 6.129 ml oz +49,521 oz COMEX SILVER stocks 105.6
Unchanged
GOLD
While European gold has managed to reject some of
the steep losses posted in Asian gold, the bias in prices would seem to be
pointing downward. With oil prices falling again it is possible that some
inflation players are being forced out of position, along with those who were
hoping for sustained Dollar weakness. In short, the macro economic or
fundamental condition is mostly bearish for gold and the technical condition
would not seem to be any less negative.
SILVER
While some might suggest that July silver has
managed to respect trend line support on a number of occasions, we aren’t
convinced that the market is finished with the recent drift downward. Weaker
economic forecasts for Asian economies and soft price action overnight in base
metals and base metals type stocks, would seem to leave the bias pointing down
in silver. In fact, the May 10th Commitment of Traders with Options report
showed the Silver Non-Commercial position to be net long 21,354 contracts, with
the Non-reportable position net long 23,027 contracts for a combined small spec
and fund long position of 43,000 contracts.
PLATINUM
Apparently few shorts are concerned about selling
into the coming fundamental report on platinum. In the past, the platinum market
has been lifted by predictions of strong growth and ongoing tightness but it
would seem that the market is anticipating a negative update on the current
market condition. It would certainly come as no surprise to see the private
forecast allude to slightly less "tight" conditions, as a number of economies
have slowed and platinum prices in general seem to have lost upside momentum.
COPPER
While Chinese traders were upbeat toward prices this
morning, the idea that Asian economies are slowing down seems to leave the
control of the copper market in the hands of the bear camp. In fact, overnight
the copper market was made aware of the fact that Chinese copper imports for the
January through April period, declined by 15% over the prior year and that also
joins the negative base metals talk present this morning, for a mostly negative
tilt toward copper prices. However, the May 10th Commitment of Traders with
Options report showed the Copper Non-Commercial position to be net long only
17,558 contracts, with the Non-reportable position already net short 267
contracts.
CRUDE COMPLEX
While the energy complex showed signs of bouncing
off last Friday’s lows, we are not very confident that the market has actually
forged a solid bottom. In fact, with the weekend dialogue from OPEC we suspect
that the sellers will return to the market rather quickly. With OPEC suggesting
that they were going to be able to meet 4th quarter demand and that their excess
capacity by the end of the year could be 3 million barrels per day, we suspect
that the trade will attempt to press prices back to and below the recent lows.
NATURAL GAS
While natural gas managed to reject the probe to
news lows late last week and is also attempting to break the tight positive
price correlation with crude oil, we are not sure that the market will avoid a
new low for the move this week. However, the May 10th Commitment of Traders with
Options report showed the Natural Gas Non-Commercial position to net short
19,627 contracts, with the Non-reportable position still net long 33,725
contracts. Therefore the small spec and fund position was still net long last
week and that suggests a decline down to the $6.25 level shouldn’t be ruled out.