Futures Point To A Higher Open
8/24/2004
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INTEREST RATES
The Treasury market was already showing signs of
being overbought and that was before energy prices softened enough to partially
improve the macro economic outlook. While it is a minimal relief to see crude
oil prices slide from last weeks high of almost $48 to the current price of
$45.49, a continuation of declines in energy prices should provide the stock
market with a lift, which in turn undermines the Treasuries. From our
perspective, the energy complex deserves a correction as prices were
significantly overbought and several of the critical supply issues have been at
least temporarily pacified.
STOCK INDICES
For most of the past week we haven’t really been
able to put a finger on the reason behind the equity market strength but now
that energy prices have shown some corrective action, it is clear that a slight
improvement in overall sentiment is being seen. For the past 6 sessions we have
been suggesting that energy price fundamentals were unwinding and that 3 of the
5 major supply threats were being moderated. Therefore, the energy complex
should correct and with a number of officials suggesting that crude oil prices
are holding a massive geopolitical premium, it would not be surprising for a
large correction in energy prices to unfold.
DOW
As mentioned yesterday, the Dow futures recently posted a net spec and fund
short in the weekly COT report and that means the market is certainly not
overbought at its current level. With a number of longer term down trend points
coming in just above the opening projection today, it is possible that a round
of stop loss buying is seen and the Dow manages to rise to 10,168. However, it
would be extremely negative for the September Dow to fall back below 9,943
today!
S&P
While the S&P did hold a net long small spec and fund long position in the last
COT report, we would not classify the market as overbought and without
additional upside. Therefore, we suspect that the upward track will extend with
the 1100 level possibly becoming solid support. In fact, it would not be
surprising to see the September S&P respect a trading range of 1100 to 1109.80.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seems to be getting favor regardless of
the ebb and flow of energy prices and that would seem to suggest that the bulls
really control the Dollar, or that the currency markets are not tracking off
energy prices in the first place. While the favorable Fed comments Monday served
to add to the upside in the Dollar, it is clear this morning that the currency
markets are bidding the Dollar up in the wake of poor numbers from the Euro
zone. In the end, the market seems to have taken the Fed comments that the US
economy is more efficient with respect to energy prices than it was in the 70’s
and that supports the Dollar. Today US economic reports are expected to show
some weakness and with the Dollar showing signs of strength already this
morning, a better than expected number could really kick up the buying interest.
In the mean time, we suspect that the Dollar can probably manage a rise to 89.52
before any significant chart resistance is encountered.
EURO
With the Euro zone posting disappointing May
Industrial orders readings, it is clear that the selling interest in the Euro
will retain a foothold. However, the fact that German 2nd quarter GDP figures
were up slightly, does serve to mitigate the negative sentiment toward the Euro
zone. Near term downside targeting is seen at July and August consolidation of
120.70 to 119.93.
YEN
The Japanese stock market is apparently working to
discount the impact of high energy prices on its economy. However, with the US
Dollar showing even more strength this morning, the Yen looks remain in a slight
down trending pattern. Near term downside support in the Yen is seen at 90.95
and then again down at 90.79.
SWISS
Like the Euro, the Swiss is having trouble shutting
off the selling tilt. In fact, until the Swiss reaches the July and August
consolidation down around 78.66 to 78.04, we doubt that the market will see much
in the way of a bounce.
BRITISH POUND
The Pound tested longer term chart support at 180.00
overnight but we are not sure that it has the fundamental information to simply
shut off the selling. In the near term, it would seem that the Dollar bulls have
control and that a temporary slide under 180 is likely.
CANADIAN DOLLAR
While the Canadian inflation readings could have
undermined the Canadian in another place and time, we think the Canadian will be
supported by the fact that prices have remained firm but did manage to slacken
from the prior month. In the near term, the Canadian remains the most likely
currency to trend higher. Top of the channel in the Canadian comes in at 77.35.
METALS
OVERNIGHT
London Gold Fix $406.90 -$3.05 LME COPPER
STOCKS 109,650 mt tons -350 tonnes COMEX Gold stocks 4.779 ml Unchanged COMEX
Silver stocks 110.1 ml -1.26 ml oz
GOLD
The combination of weaker oil prices, a strong
Dollar and somewhat impressive equity market action has gold under pressure.
Over the last four sessions the gold market has seen several instances where
flight to quality issues provided long interest and with the recent COT report
showing a moderately overbought small spec and fund position it is not
surprising that some stop loss selling is documented. However, we would expect
October gold to have critical support down at $4.05.
SILVER
Like gold, the silver market was slightly overbought
coming into the action yesterday and with a broad based metals liquidation
underway yesterday it was clear that silver would only be partially immune to
the selling. However, after a minimal slide in prices we suspect that silver
will garner renewed fund buying interest, as a persistently higher equity market
makes silver look a little more attractive. Near term pivot point support comes
in at $6.63, with even lower support seen down at $6.49.
PLATINUM
Maybe the platinum market made a critical bottom
yesterday, as platinum fell in sync with the rest of the metals. For a low
volume trade market, the most recent COT report did show a rather overbought
small spec and fund long and that probably left the market vulnerable to the
liquidation off the August high. Near term pivot point support in October
platinum comes in down at $834.8 but the uptrend restarts with a rise above 852.
COPPER
The soaring Dollar is being blamed for the majority
of the selling but we also have to think that last week’s large LME stock
increase added into the negative tilt. With lower oil prices we suspect that the
macro economic outlook is improving but since the copper market has largely
ignored the macro economic outlook, we doubt that copper prices will get a
direct lift from the potential near term improvement in the global economy. We
thought that the 123.10 level was a solid fundamental value in September copper
and therefore traders could use the low Monday as a stop point for fresh longs.
CRUDE COMPLEX
In general energy prices have shown corrective
action for the past four days and we now think that the market has a clearer
fundamental reason to break. While we doubt that the overall uptrend is set to
come apart a surprising correction is possible when one considers the magnitude
of the gains posted over the last three months. We thought the market was due to
correct once the Venezuelan election passed without significant problems.
NATURAL GAS
The natural gas market fell quickly off its recent
highs and that is mostly because the bulls were getting most of their buying
power from the strength in the crude oil market and the crude oil market is now
somewhat back on its heels. Internally natural gas has yet to fully factor
significantly lower summer cooling demand but with Monday through Thursday
weather, potentially the longest hot spell in the Midwest this summer, it could
be difficult totally break down prices. However, we suspect that fundamental
value in Nov Natural gas is down at $6.04, but a cyclical and significant low in
natural gas might targeted at $6.01.