Futures Point To A Higher Open
7/27/2004
INTEREST RATES
The Treasury market continues to waffle in a
tight trading range. Surprisingly the economic numbers have put the bull camp
off balance and from the expectations today, the bulls could remain off balance.
Expectations call for an increase of 1.5 to 2 points in consumer confidence
readings and that type of increase could easily put the measure up to a 2 year
high.
STOCK INDICES
While the stock market continued to forge lower
lows with the action Monday, there were fleeting signs of strength that might
hint at a coming low. However, the market isn’t totally convinced that the
economic outlook is strong enough to support a bottom and with expectations
calling for an improvement in consumer sentiment this morning, it is possible
that a short covering rally is seen. Apparently Asian stock prices were
undermined by the sharp decline in the NASDAQ on Monday, as that suggests the
tech sector remains vulnerable.
DOW
The September Dow charts continue to be negative, but the downside effort almost
seems to have completely lost momentum. We still think that the May lows of
9,898 are a target and that prices will have to get extremely oversold before a
bottom is forged. Without a change in the fundamental news flow, the trend in
prices is pointing down!
S&P
The S&P almost managed to forge a classical reversal yesterday but in the end,
the bear camp maintained control. Maybe the 1080 level will temporarily support
prices but it would seem like the market lacks the capacity to rise
consistently. In fact, on a rally to 1087 the September S&P might be considered
a short term sale, for short term players. Considering the duration of the July
decline, we doubt that the market is prepared to make a bottom without a
crescendo of selling. To avoid reconfirming a big picture down trend, the Sept
S&P must manage to hold above the 1075 May low in the coming sessions.
FOREIGN EXCHANGE
US DOLLAR
The Dollar certainly appears to be tracking lower.
Certainly recent economic news has been a little better than expected and that
has caused some Dollar shorts to exit. It is also possible that the market is
looking at the economic differential and granting that the US growth pace is
indeed holding moderately above that of the Euro zone. Overnight the OECD
suggested that Euro zone growth in 2004 was set to be only 1.6% and that is
easily half of the growth rate expected in the US. The OECD even suggested that
the ECB must remain poised to cut interest rates if necessary and that also
gives support to the Dollar. However, the Dollar would appear to be set to make
a bad technical trade in the early going, as it looks to fall below the moving
average at 88.91. In order for the Dollar to avoid a resumption of the May
through early July slide, it will have to see better than expected numbers. A
big decline in new home sales today could certainly provide the impetus for
selling of the Dollar. Near term support and a target in the Dollar comes in at
88.47 today.
EURO
As mentioned before, the OECD outlook for the Euro
zone wasn’t that impressive but fortunately the German IFO survey this morning
showed an up tick and that gives the Euro a lift. With the Euro showing signs of
life and the IFO actually coming in above expectations, it would not be
surprising to see the Euro rise to near term resistance of 122.22. The Euro
turns a moving average up with a trade above 122.07 today.
YEN
The yen continues to coil just above critical
support on the charts and with the Nikkei showing ongoing weakness and the July
chart pattern weak, the edge seems to go to the bear camp today. However, it
will be interesting to see if better US numbers lend some support to the Yen.
Critical support must be respected at 90.87 or a more significant technical
failure might be in the cards.
SWISS
A pattern of higher lows seems to leave the Swiss in
an upward bias and with the Euro showing some signs of strength, we have to
think that a rise to 79.60 is possible over the coming two sessions. Short term
technical indicators were surprising oversold around the recent low and that
might also provide the Swiss with an added lift.
BRITISH POUND
The Pound seems to have found solid support around
182.28 but in order to rekindle the bull track, the Pound will have to rise
above the down trend line today at 184.10. A failure to hold above 182.16 would
now be a very negative development.
CANADIAN DOLLAR
The washout in the Canadian was pretty severe and we
have to wonder if the Canadian is tracking negatively off favorable US economic
developments. Apparently the Canadian came under aggressive spread pressure
against the Euro and the Yen and that might indicate a very subtle but
significant change in sentiment. Therefore, the Canadian might be vulnerable. In
fact, with a slide back below 74.78, the Canadian might come under sustained
pressure and could eventually forge a break similar to the April and May slide.
Therefore, longs should look to exit on a bounce 75.27. Look to buy December
Canadian 74.50 puts for 112.
METALS
OVERNIGHT
London Gold Fix $392.25 +$.60 LME COPPER
STOCKS 90,050 mt tons -350 tons COMEX Gold stocks 4.509 ml -29,542 oz Comex
Silver stocks 115.3 ml Unchanged
GOLD
Apparently gold prices became cheap enough to pull
in some fresh buying in the Asian trade but demand news from Japan could have
sunk prices. A sharp decline in Japanese gold coin sales of 17% in the first
half of 2004, points to soft overall demand for gold but fortunately shorter
term cash considerations have stepped in and provided support for prices. With
the Dollar down for the second day in a row and the gold market showing slightly
more favor, that could make the probe below $390 a solid low.
SILVER
While silver is showing signs of strength today it
really hasn’t shut off the negative tilt in place since the July highs. With no
change in exchange stocks the market is simply lacking a fundamental story and
that means the market is subject to the ebb and flow of the gold market. With
gold showing some minor long interest today, it might be possible for silver to
rise to resistance of $634 but it will have an uphill battle on the upside.
PLATINUM
The platinum has already fallen below the moving
average on the opening this morning and the slack demand noted for Japanese gold
coins is a negative for platinum. While we expected platinum to respect even
number support at $800 to begin the week, we now think that October platinum
could slide to even lower support of $797. Anglo American platinum did manage to
post an increase in profits and that came off increased production and sales and
because of higher pricing.
COPPER
The copper market continues to hover in negative
technical territory on the charts and with Chinese prices lower overnight and
the headlines bringing evidence of increased production, we think that lower
pricing is in the cards. Antofagasta indicated that production at their company
increased by 16% to 126,400 tons in the 2nd quarter and that should add to the
light amount of price pressure being seen in the market this morning. A critical
moving average is violated with a slide below 123.50 and with the Grupo Mexico
strike deadline extended to August 10th, it is clear that labor issues are not
going to directly support prices for at least a couple weeks.
CRUDE COMPLEX
We are a little surprised that energy prices came
under such significant pressure Monday, as the fear of a complete failure at
Yukos could have served to countervail the negative news from Saudi Arabia.
Apparently Saudi Arabia indicated that they would provide all the oil its
customers wanted in the month of September and that would seem to be both a
quota and output ceiling busting statement. However, the product markets were
surprisingly the hardest hit yesterday and that might be because the trade sees
recent cool temps in the US reducing cooling needs and possibly reducing summer
driving activity.
NATURAL GAS
We suspect that natural gas prices came under
liquidation pressure yesterday solely because of much cooler than normal temps.
However, with the regular energy complex also down on Monday that would seem to
clear the way for the natural market to press the small spec longs out of
position. In short, we see the path of least resistance to be down, even if some
weather forecasts are calling for hotter temps ahead.