Futures Point To A Higher Open
7/21/2004
INTEREST RATES
The Treasury market wasted no time in washing out
following the Greenspan dialogue, as the Chairman provided an upbeat outlook on
the US economy. We suspected that Greenspan would cheerlead but we didn’t expect
the slowing pattern from the beginning of June to be so easily shrugged off. In
fact, the Fed Chairman seemed to make almost nothing out of the June, slowing
and that seemed to disappoint a significant number of longs.
STOCK INDICES
The stock market seemed to anticipate the
dialogue from Greenspan yesterday, as prices began to rise Tuesday ahead of the
actual testimony. In fact, the market seemed to gather favor off the Radio Shack
and Corning earnings yesterday morning, even after the market had failed to show
favorable action off other strong earnings reports of the last week. In short,
the market seemed to come alive and part of that revival could have been caused
by a mostly oversold technical condition.
DOW
Near term upside targeting in the September Dow comes in at 10,210 but the trend
doesn’t turn up until the Dow regains 10,245. Since the market technically saw a
classical bottoming signal yesterday, it is possible that a 2-3 day rally is
ahead. The moving average doesn’t turn up in the Dow until prices mount a climb
above 10,276.
S&P
The S&P is poised to rally and might not encounter heavy resistance until the
1120 level. The moving average shifts to the upside with a rise back above
1122.60. Like the Dow, we see the scope for at least another day of higher
action. In order to effectively shut off the down trend, in effect since the
March highs, the September S&P needs to climb above the trend line at 1142.60
today and at 1142.40 on Thursday.
FOREIGN EXCHANGE
US DOLLAR
Like the US stock market, the Dollar seems to have
garnered a near term respect that it didn’t have prior to the Federal Reserve
Chairman testimony. In other words, the Fed Chairman is in effect talking the
Dollar up. However, we have to think that ongoing weakness in the US numbers is
going to make it difficult for the Dollar to forge anything other than technical
short covering. Some might point out that Greenspan downplayed the recent
softening of US numbers and that the Chairman is usually right in his
prognostications. Therefore, one has to respect the near term capacity to rally
the Dollar. Near term upside targeting in the September Dollar comes in at 88.54
but a temporary rise to 88.65 would not be totally surprising, considering the
oversold status of the Dollar and the need to correct the technicals.
EURO
Given the failure of consolidation support in the
Euro, it would seem like the Euro has the basis to slide down to 122.48. The
trend in the Euro remains up, as long as the Euro maintains a trade above the
moving average at 122.03. Consumer confidence in Italy came in slightly above
the prior reading and that hardly serves to counter the technical action in the
marketplace. With the Microsoft record cash dividend payment hitting the
newswires this morning, it is possible that the Euro suffers some additional
selling as investors migrate toward the US equity market.
YEN
Early this week we feared a decline in the Yen off
the deteriorating US outlook and therefore the downside breakout in the Yen
overnight is really surprising. Near term downside targeting in the Yen comes in
at 91.58 and then again down at 91.38. However, if the outlook toward the US
economy remains positive, we don’t see the Yen sliding below consolidation
support at the 91.00 level.
SWISS
The Swiss has come unglued in the overnight action.
Not only has the Swiss failed to hold at moving average support but it would
seem like a wholesale liquidation is possible and a slide below 80.00 is likely.
In short, the Swiss looks to have at least one more day down, possibly two.
BRITISH POUND
Even with the Bank of England suggesting that the UK
economy has little if any spare capacity, the trade is dumping the Pound. In
fact, despite the potential for higher interest rates, the Pound is being
routed. Maybe the BOE predictions of weaken domestic demand in the UK provide
the basis for the selling. Near term downside targeting in the Pound is seen at
182.34.
CANADIAN DOLLAR
With the Dollar showing so much concentrated long
interest and US Fed testimony continuing, it is possible that the Canadian
slides to lower support of 75.51 before the market finds a low.
METALS
OVERNIGHT
London Gold Fix $401.10 -$4.40 LME COPPER
STOCKS 92,325 mt tons -675 tons COMEX Gold stocks 4.471 ml +4,072 oz Comex
Silver stocks 114.5 ml -221,802 oz.
GOLD
While gold market players seem to suggest that a
more favorable outlook for the US economy, inspired by the Fed testimony
yesterday caused gold to slide, we think the real culprit is the fact that the
Dollar is stronger. In other words, we don’t think that the gold market rally
off the May low was fostered by flight to quality buyers, that were anticipating
problems in the economy and that those players are now liquidating gold
positions. However, the fact that Greenspan merely discounted the May and June
slowing in the US, certainly gives the Dollar a short term windfall but we doubt
that the long interest in the Dollar will entrench.
SILVER
While the silver market looks to remain under light
selling pressure it should be noted that exchange stocks declined again and now
stand at 114.5 million ounces. Therefore, even though the near term technical
case in silver looks vulnerable, the fundamental case for the bull camp is
improving. It would not be a shock to see September silver prices slide to
$6.445, which was the bottom of the spike low on July 20th.
PLATINUM
While platinum has only managed an inside days range
today, it is favoring the upside and could easily break out above resistance at
$834.8. Some of the upside impetus in platinum might be lost with the news that
Stillwater employees ratified a deal that would seem to end the labor dispute.
Therefore, the platinum market might need to see the scope for favorable
economic growth, just to return to the May highs.
COPPER
With a massive range down yesterday, the trade has
to be teetering on even more declines. With Chinese copper prices down overnight
and the trade recently digesting 1st half Chinese copper import growth of +35%,
the impact from the Chinese trade is mixed. With a strike deadline extended at a
Grupo Mexico mine, it would seem that the strike threat is not as dominating as
before.
CRUDE COMPLEX
While the energy complex failed significantly
from the Tuesday highs and seemed to be in a liquidation thrust, we have to
think that renewed concerns toward Saudi Supply could surface as the Saudi crack
down resumes. Apparently late yesterday afternoon the Saudi Military battled
with 5 militants in Riyadh. It seems that the asylum offering from the Saudi
government at the end of June has run out and that the Saudi government is now
prepared to hunt down and engage domestic threats.
NATURAL GAS
The 6 to 10 day forecast would seem to favor the
bear camp and if the regular energy complex continues to slide, as it did into
the close Tuesday, we suspect that natural gas prices will also give ground.
While we think the $5.75 level is a potential support zone, the combination of a
slack economic outlook, average temps and minimal direction from the regular
energy complex, should keep the natural gas market pointing downward. Another
uptrend channel support line is violated with a decline back below $5.815 and a
violation of that level early could result in a slide to the April 20th low of
$5.566.