Futures Point To A Higher Open
2/9/2005
INTEREST RATES
While the March contract showed a sharp recoil
from the highs during the session yesterday, the market eventually re-gathered
itself and remains right on the contract high levels. While the Press is
suggesting that the second wave of the auction today might not have as much
interest as the first leg, it would seem like the bull camp is fairly
entrenched. With the exception of a wholesale trade reading this morning, the US
economic report slate has continued to generally favor the bull camp in
Treasuries.
STOCK INDICES
While the market continues to forge minor gains
in the blue chip sector, the lower tier stocks have actually fallen back
slightly and that suggests a lack of bullish consensus. We also have to think
that the trade is becoming a little disappointed with the progression of the US
recovery, but that favorable moves in the US Dollar recently have served to pull
in some foreign buyers to replace waning domestic buying interest. However, it
would seem like the CISCO earnings yesterday afternoon were not the bullish
catalyst many expected them to be and that shifts the pendulum a little more
toward the bear camp.
DOW
The March Dow has continued to carve out new highs for the move in each of the
last three sessions but momentum is obviously restrained. On the other hand, it
would seem like earnings information has given the March Dow solid support at
10,695 and with some analyst thinking that a stronger Dollar is pulling in some
foreign buyers, it is possible that the Dow will avoid a more significant
corrective dip. In fact, if the Dow manages to hold above 10,695 again today,
one might begin to look at picking a low.
S&P
Critical support in the March S&P comes in just below the market at 1199.60 this
morning. We think that the CISCO earnings disappoint the market and set up the
potential for a near term slide down to 1195.10. However, the March S&P might
surprise the trade and find support at 1197.50. A normal retracement of the late
January to early February rally would seem to target 1190.20.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seems to have found some solid resistance
on the charts despite the fact that many in the trade think that foreign money
will continue to flow toward US Treasury instruments. However, the US economy is
not providing the type of information necessary to propagate the upside in the
Dollar in the short term. We are not sure if the wholesale trade reading from
the US this morning will carry that much weight but that report could put a
little more pressure on the Dollar. While some might suggest that the 85.00
level is a critical psychological level, we suspect that the Dollar will drift
down below that level in the coming two sessions. However, if the 5 year note
auction today results in a surprise, one should expect to see sudden volatility
in the Dollar. We think the market has come too far too fast and that the
fundamental news flow on the US recovery hasn’t lived up to expectations and
therefore those that are long March Dollar call premium, should attempt to
scratch out a profit and move to the sidelines.
EURO
As we suggested in the Dollar comment, we are not
sure that recent trends will continue. In fact we suspect that the Euro is
oversold technically and that support of 127.38 will be respected. In the event
that the US Treasury auction fails to show ongoing support for US instruments,
we suspect that the March Euro will have the ability to rise toward the recent
pivot point at 128.70 to 128.90. Those that bought March Euro puts should
salvage premium and wait for a bounce to 1129 to re-set the puts in the June
contract.
YEN
We suspect that the yen is oversold and poised to
forge a near term bounce. However, we doubt that the issue of Asian exchange
rates is going to go away quickly and therefore we suspect the Yen will attempt
to forge a near term bounce. Near term upside targeting comes in at 95.19 and
possibly even 95.50. Japanese machinery orders will be released on Thursday
morning and that is typically a closely watched report considering the
manufacturing capacity of Japan. Therefore, in order to foster something more
than a simple short covering rally, the Yen will have to see strong machinery
orders figures.
SWISS
A normal retracement off the December through
February slide would seem to allow for a bounce all the way up to 84.45, but we
seriously doubt that the market will be able to forge that kind of bounce. In
fact, we doubt that the March Swiss will be able to rise above 82.72 in the
coming technical bounce.
BRITISH POUND
The Pound seems to have found solid support at
185.00 and appears to be poised to rally off the December manufacturing data
released overnight. While manufacturing was only up +0.6%, against the backdrop
of economic disappointment from other countries, the UK data is apparently
enough to inspire short covering and fresh outright buying. Near term targeting
is 186.25.
CANADIAN DOLLAR
A little bit of favorable economic talk from the BOC
yesterday, regarding the favorable exchange rate and its ability to lift the
Canadian economy appears to have sparked a change of sentiment toward the
Canadian Dollar. In fact, given the Dollar’s vulnerability we suspect that the
March Canadian is set for a return to the 81.00 level. While we doubt that talk
of a resumption of US beef exports is that critical to the Canadian Dollar, that
is a psychological lift and that comes with the Canadian already posting some
upside action.
METALS
OVERNIGHT
London Gold Fix $413.20 +$1.70 LME COPPER
STOCKS 54,375 metric tons +350 tons COMEX Gold stocks 5.948 ml Unchanged COMEX
SILVER stocks 102.3 ml Unchanged
GOLD
We suspect that the lows Tuesday will hold for a
couple of sessions as the Asian trade remains thinned because of holidays and
the Dollar is without a definitive direction in the last 24 hours. A large
brokerage firm appears to have lowered it’s near term price targeting for gold
and that certainly dovetails with the recent chart failure in gold and the
upside breakout in the Dollar. We also continue to think that flight to quality
interest in gold is waning slightly and therefore we suspect that the net spec
long position is destined to contract even further.
SILVER
Since the gold market seems to lack definitive
direction and in general maintains a bit of a negative track, we suspect that
silver will also be partially undermined. However, some Press sources are
suggesting that silver is set to get a lift from physical demand expectations,
but in our opinion the most recent buying in silver appeared to come from fund
players and not physical players. We also have to wonder if silver can expect
support from outside markets, as copper prices seem to be locked under near term
chart resistance and China is still mostly on the sidelines.
PLATINUM
The platinum market continues to slide aggressively
and would seem to be negatively influenced by the Chinese holiday and could
easily continue to see spillover weakness from the gold market. Near term
downside targeting in the April platinum contract comes in at $845 and possibly
at $838 today.
COPPER
While the overnight rise in LME stocks wasn’t as
significant as some readings over the last two weeks, the pattern would still
seem to be pointing toward higher stocks. While the Press is suggesting that
rising stocks won’t necessarily end the bull market in copper we beg to differ.
In fact, unless the world economy manages to gather significant pace we doubt
that copper will be able to manage a return to the old highs.
CRUDE COMPLEX
The energy complex started the session out
Tuesday weak, as the market assumed mild ongoing weather and little change in
stance from OPEC. However, toward mid day Tuesday the market became aware of a
much colder forecast for next week. In fact, it would seem that an arctic blast
might settle in toward the middle of next week and that could be the coldest
weather system of the year for the US.
NATURAL GAS
Certainly the natural gas market responded to the
change in the weather forecast and with the regular energy complex showing some
recovery potential, the bear tilt is temporarily vacated. In conclusion, the
natural gas market is basically weak and without concentrated speculative buying
interest. In fact, we see most fundamental elements limiting attempts to rally.