Futures Point To A Higher Open
2/7/2005
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INTEREST RATES
While the shortfall in the non farm payroll
report last Friday seems to the main driving force behind the bull case in
Treasuries today, all is not perfect within the bull camp. However, with the
last COT report showing a net spec and fund “short” of 37,000 contracts it is
not surprising that the bonds exploded into new high ground last week and
continue to hold that ground in the early action today. In fact, considering the
short positioning of the specs and the partially disappointing non farm payroll
readings last Friday, prices will probably hold near the new highs for at least
a few sessions.
STOCK INDICES
Apparently the stock market sees economic
conditions in a different light than the bond market, as both market seemed to
see the US payroll report as a positive. We suspect that stock prices will
continue to get residual support from a string of favorable corporate earnings
reports, but we also think that the market is content with “generally improving”
economic conditions. For instance, energy prices have remained generally soft
and with OPEC seemingly set to allow even more price declines, it is likely that
North America will get through the winter demand period, without disposable
income being ravaged by extreme energy costs.
DOW
While the Dow futures have the “longest” spec position of the active futures
Indexes, we doubt that the bull camp is going to back away because of slightly
overbought technical considerations. In fact, with interest rates holding steady
or declining, energy prices soft and the merger/buyout expectation still in
place, the Dow would seem to have the best fundamental setup. Near term critical
support comes in today at 10,693 and near term upside targeting is seen at
10,722.
S&P
The net spec long position of the S&P was only 28,000 contracts, which is
significantly below our overbought spec designation of 100,000 contracts long.
We suspect that the market is poised for an extension of the rally last week,
with a near term target seen up at 1206.50. On the other hand, it would not be a
positive for the March S&P to fail to hold above the 1200 level on a close basis
today.
FOREIGN EXCHANGE
US DOLLAR
The Dollar actually gapped up this morning which is
quite shocking, considering that no progress was made in the G7 meeting with
respect to the Chinese currency peg. We suspect that the US economic numbers are
good enough and that foreign central banks are in fact supporting the US Dollar
and in the process are actually buying more US Treasuries. With the US equity
market also plowing away to the upside, it would seem that some foreign money
might be coming into the Dollar for the potentials in the US equity market.
While we have been calling for the Dollar to rise, we are a little disappointed
that the gains are coming off reasons other than an ultra strong US economy.
However, one can’t fight the trend and the trend in the Dollar is up and might
now get some longer term trend buying, as the Dollar managed to rise above the
100 day moving average for the first time since August of 2004. Near term
targeting in the March Dollar is now the late October consolidation zone bound
by 85.08 and 85.72.
EURO
Like the Dollar, the Euro fell below the 100 day
moving average and has gapped lower to start the week out. While we would have
preferred to see the Euro under pressure off a stronger than expected US payroll
report, it seems like the trade has found enough impetus to press the currency,
despite an oversold technical condition. We see the March Euro trading down to
128.00 sometime later this week.
YEN
With the BOJ suggesting that they will continue to
maintain easy money policies, it is clear that the Japanese economy has yet to
move into a sustained growth position and that undermines the Yen. We are a
little surprised that the market is giving up on the Chinese currency situation
without a fight and that could allow the Yen to slide below consolidation
support of 95.70. The 100 day moving average in the Yen comes in down at 95.28
today.
SWISS
The Swiss has gapped down overnight and would seem
to be headed to our downside targeting of 81.83. While the Swiss is the most
oversold currency from a short term perspective, we doubt that the trade will be
able to shut off the selling in the coming two sessions. With a rising global
equity market, less Dollar fears, the passing election in Iraq and slackening
oil prices, the flight to quality element is simply being extracted from the
Swiss.
BRITISH POUND
While the Pound gapped down overnight it is clear
that the trade isn’t that comfortable in attacking the Pound. In fact, we
suspect that the Pound could slide down to 186.30 but there would not seem to be
a great amount of short interest poised to attack the Pound.
CANADIAN DOLLAR
With the downside failure at 80.00, the trend in the
Canadian shifts downward. Near term targeting would seem to come in at 79.71 but
an even lower target of 79.11 can’t be ruled out.
METALS
OVERNIGHT
London Gold Fix $414.50 -$2.00 LME COPPER
STOCKS 50,825 metric tons -175 tons COMEX Gold stocks 5.977 ml -3,729 oz COMEX
SILVER stocks 102.3 ml Unchanged
GOLD
The gold market is probably a little relieved
following the weekend G7 meeting, as the market expected more of a discussion on
the sale of gold for African debt relief. However, it seems that the G7 is going
to address the gold sale/debt relief issue in the next meeting and that
alleviates part of the preexisting bear sentiment. Since nothing concrete was
established on the Chinese currency situation that could also take some of the
pressure off the gold as that probably takes away some of the US Dollar
volatility.
SILVER
The silver continues to show signs that more
weakness is ahead, especially with a failure below critical near term support at
$6.59. While the downside momentum in gold looks to be less severe this week, it
would seem like the strong Dollar/weak gold pattern will generally remain in
place. We would suggest that traders lower their re-entry point on the long side
to $6.50 because we think the market is without real solid near term support and
the market probably can’t expect as much physical demand activity this week due
to the Asian holidays.
PLATINUM
While the April platinum contract has managed to
recoil from the chart failure last week, the presence of the Asian holidays
should rob the market of some buyers. The COT report showed the net spec long to
be 4,500 contracts, which is a moderately long spec position. One can’t fight
the trend but we are still uncomfortable buying platinum so far off the December
lows ($65) and so close to historical highs.
COPPER
The copper market remains vulnerable but with the
attempt to bounce last week, some of the aggressive bearishness has been
mitigated. We suspect that the Asian holiday period will serve to dampen
speculative interest and that could serve to put the copper market back into the
liquidation posture seen early last week. We would continue to hold out for a
downside objective of 135 basis the May contract, but with the small spec and
fund long in the COT report showing a net long of only 24,000 contracts, we now
doubt that 128.50 is in the cards.
CRUDE COMPLEX
Energy prices come into the new week slightly
lower in the early action despite talk that weather might be ready to disrupt
some North Sea supply. While the energy complex managed a convincing slide off
the late January highs, we now suspect that prices will have the ability to
forge a solid consolidation low around the lows forged last week. On the other
hand, we also suspect that the market will continue to be undermined by mild US
weather and that April crude oil could temporarily slide below the $46.00 level
in the event that US temps remain mild and the US recovery remains slow.
NATURAL GAS
A pattern of lower highs has given way to a much
weaker technical setup. With more weakness expected in the regular energy
complex and mild US weather ahead, we suspect that another test of $6.00 is to
be expected basis the April contract. With the most recent weekly inventory draw
unimpressive and the annual surplus rising, the bear camp should maintain
control over prices for at least the first couple sessions this week.