Futures Point To A Higher Open
8/9/2004
INTEREST RATES
While Treasury prices might have overreacted to
the report last Friday, it is clear that the fundamental picture is distinctly
in the bull camp. With the latest COT report showing the net spec position to be
nearly balanced, one has to concede that Treasuries retain the ability to rally
especially if given evidence of more slowing. While many economists think that
the Fed was put on hold with the weak payroll readings, we would see a rate hike
move by the Fed as a generally supportive development.
STOCK INDICES
The stock market remains on the rocks and in
looking forward we are not sure there is much in the way of a silver lining in
the current cloud bank. While the market might be temporarily lifted by comments
from the Fed Tuesday afternoon, (that the US slowing is temporary) the fact of
the matter is that the stock market isn’t in a position to offer stellar rates
of return. Certainly the bear tilt could be partially diffused by a sharp
decline in energy prices, but we are not sure what chain of events would be
needed to see that happen.
DOW
Next downside targeting in the Dow comes in at 9,700, with critical resistance
seen at 9,810. While the Dow futures were already net spec short as of August
3rd, the technicals are not going to prevent this market from going even lower.
S&P
Next downside targeting in the September S&P comes in at 1052. In fact, until
the net spec position in the S&P reaches a net short of 10,000 contracts (it is
currently 18,000 long) we are not prepared to call for a technical bottom. The
pattern of lower lows confirms that the trend is indeed pointing down, sell
200-300 point rallies in the S&P.
FOREIGN EXCHANGE
US DOLLAR
What ever strength one sees in the Dollar over the
coming sessions should be seen as simple technical balancing and not a sign of a
bottom. In fact, until the US manages to float a series of better than expected
economic readings, one should be primed to sell rallies of 20-30 points in the
September Dollar Index. In fact, about the only thing that is likely to slow the
decline in the Dollar, would be extremely weak numbers outside the US. In the
near term, the focus will remain on the disappointing progress of the US
economy. However, on Tuesday afternoon the market might see a temporary rally
inspired by the Federal Reserve pep talk but once that dialogue is digested, the
selling in the Dollar should resume. In fact, we see no reason why the Dollar
wouldn’t slide toward 88.00 in the coming sessions. In order to turn the trend
around in the Dollar, it might take a rise back above 88.78.
EURO
The Euro wasn’t really in a position to pull in
significant long interest unless the US really stumbled. Therefore, we are not
inclined to jump aggressively on the bullish bandwagon in the Euro. If the
September Euro were to correct back to 122.37 we would probably suggest a long
entry, but one has to watchful of coming Euro zone numbers, as a soft patch
similar to the one seen in the US should be about ready to show up in the Euro
zone.
YEN
While bargain hunters showed up in the Japanese
stock market overnight we are not convinced that the Yen is capable of regaining
the 90.00 level and attempting to return to 91 to 93 trading range seen in June
and July. The Japanese economy has heavy exports to the US and is also impacted
by soaring oil prices and for that reason we are not willing to bet that the Yen
is poised to rally. In fact, position traders might consider getting short the
Yen on a rally to 90.80, using an objective of 89.00 and a risk of 91.09.
SWISS
We think that the Swiss is capable of a bounce back
above 80.00 but it also appears to lack a driving force to sustain upside gains.
In fact, unless the US outlook it seriously undermined again shortly, the Swiss
might see a slide back toward the middle of its range down at 79.46.
BRITISH POUND
With most of the other currencies showing sloppy
action and the Dollar apparently undermined for the near term, the Pound has to
have some potential. However, from the UK inflation numbers released overnight,
it is clear that the UK economy is also somewhat anemic. Therefore, fresh buyers
in the Pound probably have to wait for a correction back to 182.50 to get long.
CANADIAN DOLLAR
While the Canadian appears to be expensive on the
charts, it might have the best fundamental and technical setup of all the
currencies. However, the Canadian payrolls weren’t exactly stellar and a
temporary correction to 75.91 wouldn’t be surprising. The trend is up but this
market is probably going to ebb back and forth before it makes another new high
move.
METALS
OVERNIGHT
London Gold Fix $398.60 +$6.35 LME COPPER
STOCKS 83,050 mt tons -975 tons COMEX Gold stocks 4.713 ml -397 oz Comex Silver
stocks 113.6 ml -14,404 oz
GOLD
It took a massive slide in the Dollar to rekindle
long interest in gold, but it is also clear that the bull camp wants step wise
declines in the Dollar to continue forging gains in gold prices. However, the
economic undermine of the US Dollar was fairly conclusive with the July payrolls
sliding significantly below the anemic June readings it would seem like the
Dollar is poised to slide even further. While the COT report showed gold to have
a moderately overbought long positioning at 87,000 contracts, the market isn’t
without additional buying capacity.
SILVER
The pattern of higher highs continues and with gold
behaving much better, it might not be as hard for silver to carve out more
gains. The weekly COT report showed 68,000 contracts long but that is probably
understated given that silver comes into this week 7-8 cents above the level
where the COT report was measured. Exchange stocks continue to hover just above
levels that could attract some attention but with the US economic numbers
slumping last Friday, the hope for a tight supply strong demand driven rally
would seem to be reduced.
PLATINUM
The platinum market has forged an upside breakout
overnight and would seem to be headed to the June high of $834.8. While platinum
doesn’t have a large spec position, the market might be net spec long 1,400
contracts coming into the action this week. However, platinum isn’t historically
overbought until the spec long position reaches 5,000 contracts long.
COPPER
The copper market seems to be peaking out below
critical support and with the extremely disappointing news from the US economy
and ongoing weakness in world equity prices, we are not surprised to find copper
weak and poised to slide lower on the charts. However, Chinese copper futures
were higher overnight and did so on what appeared to be Chinese buying. If the
Chinese are buying for fresh positions that could effectively negate the
downside tilt in copper but probably won’t totally discourage a temporary slide
in prices.
CRUDE COMPLEX
It would seem that energy prices are going to
continue to embrace bullish fundamentals. However, it also seems like the market
is exhibiting consistently more volatility, as ultra high prices are making it
increasingly more difficult to accept the risk and reward of being long. The
crude oil market comes into the week with its net spec and fund long at roughly
70,000 contracts long (adjusted for the action since the COT was measured) and
that isn’t a position that is dramatically overextended.
NATURAL GAS
The natural gas managed a downside breakout on the
charts and seems to be tracking the way one would expect considering the ultra
cool weather pattern that is entrenched over a large portion of the US. We also
see pressure on prices from the ongoing inventory injection pattern. While we
thought that October natural gas was poised to make a bottom, softening in the
regular energy complex and the forecast for continued cool weather in the
Midwest seems to clear the way for an early fall liquidation of the small spec
long position.