Futures Point To A Higher Open
10/13/2004
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INTEREST RATES
The Treasury market did manage another new high
for the move yesterday and did so in the face of a clean sweep of better than
expected regional Fed manufacturing readings. In other words, the Treasury
market was content to bid prices up, despite contrary economic readings.
However, from mid session Tuesday it would seem that a number of fundamental
changes have slightly altered the generally supportive tilt that was present
into the opening yesterday.
STOCK INDICES
The stock market would seem to come into the
session today with a moderately better fundamental and technical setup than was
seen yesterday morning. However, we are not sure if the setup is a temporary
lull in the existing bear trend, or if we have reached an inflection point. For
instance, the crude oil market comes into the session this morning almost $3
below the Tuesday high and the Intel earnings were much better than the dismal
forecasts in place prior to the earnings release.
DOW
While near term support of 10,039 has been enforced slightly by the bounce off
the low on Tuesday, the market would seem to have significant overhead
resistance as it continues to fight against a downtrend mentality. As suggested
before, the Dow really needs to see economic headwinds reduced and it also needs
to get consistent help from favorable earnings just to discourage further
selling. In short, the market trend is still down until one sees a clear cut
headline change. Resistance is pegged at 10,123.
S&P
Like the Dow, the December S&P should have re-enforced the support at 1120 with
the action of the last 24 hours. While the Intel earnings improve sentiment and
the setback in energy prices takes some of the pressure off, we don’t think that
the buyers are ready to boost prices consistently under the current fundamental
condition. Near term short covering potential in the S&P is seen at 1126.80, but
we wouldn’t rule out a rise to 1130.70.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seems to be on the verge of an upside
breakout on the charts and it is really difficult to ascertain just what is
driving the Dollar. The correlation with energy prices is nonsensical, the
market really hasn’t paid much attention to scheduled economic numbers and there
really doesn’t seem to be a direct flight to quality influence. Certainly US
economic numbers released yesterday were better than expected but it could take
a string of readings to markedly upgrade the outlook for the US economy.
However, we still think that the US growth rate will be moderately higher than
the growth seen in other areas. With the UK posting a September claimant jobless
decline of a mere 200, it is clear that the US September payroll was
significantly stronger than the UK reading. The US Senate also provided some
incentive to growth by pushing through a tax bill that could stimulate some
economic activity and that is at least some effort to counter the slowing threat
created by soaring energy prices. A critical down trend resistance channel line
in the December Dollar comes in at 88.47 today but a real inflection point takes
place with a rise above 88.80.
EURO
In addition to the slightly better look at the US
economy, the Euro has the added weight of the negative German ZEW readings
released on Tuesday. Therefore, we see the Euro with a downside bias and a
downside target of 122.70 and 122.43. Critical long term up trend channel
support comes in today at 122.85.
YEN
While the yen seems to have topped, we are not
inclined to project a big downside slide in the currency. For one thing, the
outlook for the US is slightly improved and secondly energy prices have removed
some of the psychological pressure on the Japanese economy. We do have to wonder
if the recent change in Chinese currency dialogue, is a negative for Yen as
sharp declines in many commodities recently being purchased by China, could hint
at some slowing economic activity for Japan. Solid support in the Yen comes in
at 91.13 and then at even numbered 91.00.
SWISS
The coiling in the Swiss continues and we suspect
that more time will be marked on the charts before a breakout takes place.
Define the breakout zone in the December Swiss at 80.10 and 79.35.
BRITISH POUND
While the UK August unemployment reading was
somewhat impressive, the September figures (in our opinion) were a little
discouraging for the Pound. We really don’t see a reason to push the Pound down
sharply but the path of least resistance is pointing lower.
CANADIAN DOLLAR
As we feared, the Canadian was caught in an
unfortunate position and that exaggerated the downside washout. However, with
the Dollar bordering on an upside breakout, we are not sure that the downside
correction has run its course. Trend line support comes in at 78.17 but we think
the market will check up above 78.41.
METALS
OVERNIGHT
London Gold Fix $412.45 -$5.75 LME COPPER
STOCKS 88,575 metric tons -1,300 tons COMEX Gold stocks 5.135 ml Unchanged COMEX
Silver stocks 106.9 ml Unchanged
GOLD
With gold falling below moving averages and several
layers of support it is clear that a concentrated liquidation took place. Given
that the CRB Index declined sharply and that funds were noted sellers in a
number of markets, it would appear that a reallocation was underway. One news
outlet suggested that the funds had grown wary of metals and were possibly
poised to move capital toward more undervalued markets like cocoa, coffee and
sugar.
SILVER
According to a Dow Jones story out of Singapore, the
uptrend in oil and gold has ended but we are not sure that a simple correction
from extremely overbought conditions suggests that any change in the fundamental
condition has taken place. Certainly the silver market has itself damaged
several layers of chart support and the 70,000 to 80,000 contract spec and fund
long is under the liquidation gun, but once the technical washout has run its
course, we suspect that value hunters will return to the buy side. In the near
term the December silver might see a decline to $6.72, especially if a critical
pivot point at $6.80 is violated in the early trade today.
PLATINUM
Prior to the big slide in gold and silver, the
platinum market was already behaving poorly and now that the outside markets are
under pressure, there is certainly an increased potential for additional fund
liquidation in platinum. We would be surprised if soaring energy prices were the
sole driving force in the metals and we would be equally surprised that the
energy rally will simply stop on a dime, without a fundamental justification for
a top. However, the platinum market is holding a significantly higher historical
price level than either gold or silver and therefore the risk of being long
platinum right now it pretty high.
COPPER
A massive range down in copper overnight suggests
that more long liquidation is ahead. While the current break was started by fund
liquidation and talk about a change in the Chinese currency, the sharply lower
Chinese action overnight leaves the bears in charge. It seems like the December
contract has declined below the moving averages overnight and that could
facilitate even more selling.
CRUDE COMPLEX
The energy market flared aggressively early,
managed more new all time highs but then failed to hold the gains. It would
appear from a technical standing that the market has made a temporary top and is
due for a correction, but the fundamental track hardly shows anything
significantly different in the supply and demand setup. Some traders might
suggest that news from the IEA undermined the trade, as they suggested that
world oil supply is actually higher but that refinery and supply glitches are
temporarily making conditions seem worse than they really are.
NATURAL GAS
The natural gas market has violated a series of key
support points and could be headed back to $7.50 in the event that crude oil
remains weak. Given that the small spec long in natural gas is at such a
burdensome level, we can’t discount the potential for a violent setback in
prices. In fact, a violation of the $7.50 level could quickly send prices down
to the next pivot point at $7.40.