Futures Point To A Higher Open
10/4/2004
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INTEREST RATES
The Treasury market comes into the session today
under a liquidation threat and under a generalized change in overall sentiment.
Apparently the market is still a little concerned about rising interest rates,
even with the regularly scheduled economic report slate showing mostly weak
readings. The overnight weakness in Treasury prices isn’t that surprising in the
face of the sharp equity market performance around the globe.
STOCK INDICES
While the current rally feels suspect, we are not
inclined to step in against the move until prices reach and extensive overbought
condition, or unless crude oil prices rise to yet another new all time high.
Apparently the rotational benefit from last week is fostering a better opinion
of the coming earnings report cycle and that is somewhat surprising, considering
the decline in sentiment and the pattern of economic readings over the past
month. However, the trade appears to have a full head of steam and isn’t being
deterred by the typical concerns.
DOW
The downtrend channel resistance line in the December Dow comes in at 10,399
today and at 10,397 on Tuesday. As of last Tuesday, the Dow futures were net
spec and fund short in excess of 2,000 contracts and that certainly leaves the
market close to a technical balance, as it enters the trade this week. In short,
let the market rise further before considering a sale later this week.
S&P
In the December S&P the top of the down trend channel has already been regained
at 1134.30 and that would seem to reverse the downtrend that was in control
since the March high. However, in order to justify that upside trend shift, we
have to think that energy prices will have to show some sign of softening. In
the near term, don’t fight the trend but it might be wise to trail the market
with semi tight profit stops. Near term targeting in the December S&P comes in
at 1144.50. A trade above 1144.50 could really put the technicals in an
impressive posture.
FOREIGN EXCHANGE
US DOLLAR
The Dollar has certainly recoiled from the excessive
beating it took last week and has done so off the disappointment that the G7
didn’t talk the Dollar even lower. In other words, the market was actually
hoping that the G7 meeting dialogue would facilitate a downside extension in the
Dollar. We have to think that the Dollar deserved to slide down to 88.00 but
that the Dollar didn’t deserve to slide sharply below the 88.00 level. In fact,
with the US equity market apparently leading the global markets sharply higher,
it is possible that the outlook for the US economy is improved indirectly. A
slight softening of energy prices is probably needed to justify the recovery in
the Dollar, as we think that the market was discounting the Dollar because of
the US reliance on imported oil. In the near term, the Dollar looks to respect
support of 88.00 but we are not convinced that the Dollar has the capacity to
rise sharply above the 88.50 resistance level.
EURO
The Euro is certainly seeing a profit taking slide
this morning and might not find solid support until the 122.77 level is
encountered. The ECB suggested over the weekend that they don’t see a threat of
inflation but that they do see the ongoing threat of high oil prices as the
dominating issue in the marketplace. Since the market didn’t have a solid
fundamental reason to bid up the Euro last week, we suspect that a slide all the
way back down to 122.18 is possible, but in order to see even bigger declines
ahead, the Euro will have to be confronted with a better than expected US
monthly payroll report on Friday. To turn the near term tide back to the upside,
the Euro would have to regain 123.40 today.
YEN
The Yen is under liquidation pressure this morning
and probably won’t find much support until the 90.10 level is encountered. In
fact, we can see the scope for a slide down to 89.85 in the coming sessions.
With the BOJ overnight talking about productivity fostering deflationary
conditions inside Japan, we would be surprised if the Yen didn’t make a new low
in the coming sessions.
SWISS
Near term downside targeting in the December Swiss
comes in at 79.23 and in the face of slightly positive US economic readings
early this week we could see a slide all the way down to 78.75. With lower oil
prices we would suspect that a wave of flight to quality buyers from the last
two weeks will liquidate and that could send the Swiss down to 78.17.
BRITISH POUND
The Pound looks to be headed back to the September
lows despite the fact that the Pound was dominate for most of the month of
September. Near term downside targeting comes in at 176.93 and then again down
at 176.26.
CANADIAN DOLLAR
The Canadian comes into the action this week right
on a downside channel support line. With the US Dollar showing signs of
strength, we have to think that the Canadian is under a slight liquidation
watch. In fact, if the Canadian weren’t the strongest ongoing trend in the
currency markets, we would be very concerned about an aggressive washout!
Traders with profits in the Canadian should consistently tighten profit stops in
the days ahead.
METALS
OVERNIGHT
London Gold Fix $416.85 -$1.30 LME COPPER
STOCKS 100,150 metric tons +8,350 tons COMEX Gold stocks 5.12 ml Unchanged COMEX
Silver stocks 107.6 ml -110,054 ml oz
GOLD
Apparently the gold market is going to start the
week out on a softer tone, as many in the trade are disappointed with the result
of the G7 meeting. It would seem like many traders were hopeful that the G7
meeting would yield a sharp slide in the Dollar. The bull camp should be a
little concerned as the favorable buzz seen for most of the last two weeks
appears to have been reversed.
SILVER
A quasi triple top in December silver fosters a
profit taking mentality and with gold prices already in a correction, we suspect
that a silver price pullback is directly ahead. The weekly COT report showed a
net spec and fund long of 57,000 contracts in the latest week and that leaves
the market in a vulnerable technical position. A normal retracement off the
September rally would give an initial downside target of $6.64, but the bottom
of the trend channel in the December silver comes in at $6.50.
PLATINUM
While platinum would like to see some support off
the strike action at the Impala mine, it would seem like the liquidation tilt in
gold and silver is undermining the platinum market in the early going today.
However, with the Press reporting the prospect of even more trouble at the
Impala mine, it is possible that production at the mine will remain down and
that could eventually put a more solid floor under platinum prices. Near term
support in January platinum comes in down at $845 and then again down at $841.
COPPER
A rather large increase in daily LME copper stocks
could catch the market in an overbought condition. In fact, with the Codelco
strike being postponed, the market is robbed of a key support it had last week
and with the Asian trade pared back due to holidays the copper market would
appear to be vulnerable. The weekly COT report showed a net spec and fund long
of 36,000 contracts, which is a moderate increase over the prior week and that
also suggests that some recent longs are going to be underwater with a slight
setback in prices on the opening.
CRUDE COMPLEX
The energy complex continues to show reserve
buying capacity, even when it appears that bullish sentiment is beginning to
waiver a bit. In fact, late last week it seemed like the market simply decided
to bid prices up ahead of the weekend, because of some renewed concern of how
much US production was lost ahead of the winter heating season. In other words,
the market saw yet another rally off the late September hurricane event.
NATURAL GAS
It is impressive that natural gas has managed to
hold most of last week’s stellar gains, but with crude oil prices rising back to
the vicinity of contract highs, it’s not surprising that a firm layer of support
was formed under natural gas prices. With the US progressing into the fall
demand lull and forecasts now calling for fewer tropical storms for the
remainder of the hurricane season, the market might not get as much support from
the weather. However, like the regular energy complex, we doubt that natural gas
prices will sustain much in the way of downside action unless there is a pattern
of larger than expected weekly stock builds.