Futures Point To A Higher Open
10/19/2004
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INTEREST RATES
While the technical action on the Treasury charts
looks to be deteriorating, we are not sure the same conclusion came be made yet
on the economic front. Certainly, seeing moderately lower energy prices takes
the pressure off the economy and undermines the Treasury market but it has yet
to be proven how long energy prices will remain weak. It is also understandable
that Treasuries fade slightly in the face of favorable equity market action,
especially since the equity market was mostly on the rocks coming into the
session Monday morning.
STOCK INDICES
While we thought that the earnings flow would
provide a positive kick, we did not expect to see a sudden and significant
setback in energy prices from recently acquired all time highs. As we have been
suggesting for several sessions, the main overriding force in the equity market
will be the direction of energy prices and with the significant correction off
the high Monday morning and the subsequent overnight downside follow through,
the bulls have to feel even stronger today. We suspect that the market will be
slightly undermined by the housing figures to be released this morning, but the
scheduled numbers will hardly rise to the level of importance that energy prices
currently hold.
DOW
The Dow has certainly recoiled sharply from the recent lows and with the ultra
high oil prices deflated slightly, large caps have something to cheer about. We
also think that the Dow is being given a considerable lift by IBM shares and
that could justify a rise back above 10,000. It still feels like the current
rally is a bounce in a bear market and that the outlook for the future must be
improved significantly to really expect a significant upside extension.
S&P
With the December S&P managing to climb above near term consolidation resistance
of 1115.50, it would seem like the 1120 level is now targeted. Furthermore, it
would seem that the early earnings reports this morning are going to fuel the
short covering rally further and that prices could really rock upward, if
December crude prices were to manage a slide below $51.90. However, without a
major washout in energy prices and a subsequent upgrade in the economic outlook,
we doubt that the S&P will be able to rise significantly above 1126.80.
FOREIGN EXCHANGE
US DOLLAR
Despite the improved attitude in the equity market,
there doesn’t seem to be a marked change in the outlook toward the Dollar.
Therefore, the Dollar has once again shown that it is marching to its own tune.
Periodically it seemed as if the Dollar was being pressured by sharply rising
oil prices, then it seemed like the Dollar was being pressured by sagging
economic concerns and now it would seem like the Dollar is being pressured by
the concern that investors are moving away from the US. In other words, it might
be that investors are growing more concerned over the twin deficits in the US.
While held in a vacuum, the US housing numbers this morning would probably drive
the Dollar down, but against the backdrop of declining crude oil prices and a
rising US equity market today it could be difficult for traders to continue
attacking the Dollar in the hole! However, the trend is definitely down in the
Dollar and we are not sure what will change that sentiment. We do expect the
recent low of 87.00 to hold some type of support element in the early going
today.
EURO
We have to think that the Euro is dramatically
overvalued but instead of selling into what seems to be an uptrend pattern, we
will instead suggest that traders buy a moderately expensive put option and see
if a correction doesn’t unfold over the coming two weeks. Buy the December Euro
123.50 puts for 95.
YEN
With lower energy prices and an improvement in the
US outlook, the Japanese stock market recovered and the Yen has managed an
upside breakout. However, we are not convinced that traders should pay up for
the Yen, as resistance might be rather significant at 92.43. We would not sell
the Yen or buy a put as in the Euro because the Japanese economy could be
significantly benefited by a sustained decline in oil prices.
SWISS
We can’t help but think that flight to quality
sentiment for the Swiss is set to dissipate in the coming session and that the
Swiss is destined to slide to support of 81.00 and possibly to even lower
support of 80.70.
BRITISH POUND
The Pound has a slight upward bias, with little
resistance coming in until 179.94 but we can’t rule out a rise to 180.34, if the
Euro and Swiss show some marked signs of weakness.
CANADIAN DOLLAR
The Canadian has disappointed a number of fresh
longs and a considerable liquidation would seem to be in the cards. Near term
downside targeting comes in at 78.88 and then again at 78.71.
METALS
OVERNIGHT
London Gold Fix $416.25 -$2.25 LME COPPER
STOCKS 86,900 metric tons -625 tons COMEX Gold stocks 5.258 ml +64,399 oz COMEX
Silver stocks 104.5 ml Unchanged
GOLD
The gold market remains under pressure possibly
because of the slack attitude toward physical demand and partly because the
market isn’t seeing as much flight to quality concern in the wake of lower
energy prices. With crude oil down moderately again today, the gold market could
continue to see light long liquidation. It is possible that progressively lower
oil prices will take the pressure off the US Dollar and that in turn could evoke
more minor selling in the gold market.
SILVER
Like the gold market, the silver market is in a
slightly vulnerable position after probing downward in the overnight action. It
is a little surprising that both gold and silver are so weak in the face of
concern over the Dollar and the US trade deficit. In other words, the
deflationary tilt seems to be getting more near term attention than the hope for
physical demand.
PLATINUM
Not to be excluded, the platinum market also forged
a moderately negative trade overnight but it has managed to climb back into the
recent consolidation. However, without an improved outlook toward global
economic activity, or specifically an improvement in the expectation for Asian
demand, the platinum market will remain on the rocks. We still can’t rule out a
slide to $820 basis the January contract.
COPPER
While copper prices are showing some signs of
climbing above the prior sessions close, it is a little disappointing for the
market not to charge higher off the news that a Grupo Mexico strike has spread
to a second facility. Despite the labor news, the Chinese copper market was
weaker with traders still a little concerned about the record washout last week.
Surprisingly the Chinese traders were not fretting over the massive weekly stock
build in Shanghai last Friday but instead were simply not interested in paying
up for new positions.
CRUDE COMPLEX
On Monday the energy complex forged a correction
similar to the type of correction seen last week but the correction last week
was rejected quickly and prices ended up making another new all time high within
three sessions. Another major difference from the break last week is that prices
Monday didn’t manage to recoil as aggressively from the low. Furthermore, seeing
two large corrections within a relatively short period of time has to at least
discourage some fresh buyers.
NATURAL GAS
The funds were aggressive buyers Monday, even though
the crude oil market was providing almost no leadership. Certainly the new all
time highs early Monday in crude oil prompted natural gas to firm, but the gas
market didn’t firm until later in the session after crude had softened, In fact,
until the December and January natural gas contracts climbed above near term
chart resistance the funds really didn’t show that much long interest.
Surprising weakness in natural gas related stocks didn’t undermine the fresh
spec long interest in natural gas Monday but without stronger action in crude
oil today some of the fund buyers Monday, might be quickly prompted to exit
positions.