Futures Point To A Higher Open
11/10/2004
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INTEREST RATES
With the FOMC meeting looming it would appear
that the Treasury market is seeing the bull camp pull out of positions. The
Press has one former Fed member saying that the Fed could pause today and
attempt to see what their past efforts have yielded, while another former Fed
member suggested that the Fed might be concerned about the mass exodus of
capital flowing from the US as that could create an international crisis.
Therefore, some analysts think that the Fed might end up raising rates by 50
basis points because of the Dollar influence.
STOCK INDICES
We are not sure that the stock market will simply
ignore the possible rate hike move today, but it would seem like the market is
in position to shake off negatives and resume the upside track. With
persistently falling energy prices the longs have some protection against the
Fed. In fact, we suspect that significantly lower energy prices could be seen
this morning off rising US crude oil inventory readings.
DOW
The Dow has surprisingly managed an upside breakout in the build up to the
monthly Fed meeting and that is simply impressive. As we have suggested before,
the Dow needs to play catch up to the rest of the market and with the exception
of higher rates, we have to think that significantly lower energy costs should
begin to give the Dow more of a lift, than the rest of the market. Therefore,
assume that the path of least resistance is up and that the next target in the
December Dow is 10,468. In the event that the Fed trips up sentiment, or oil
prices recover following the report this morning, we suspect support in the Dow
will hold at 10,370.
S&P
The S&P has managed a corrective consolidation and should now be poised to move
to an even higher trading range. However, in the event that the market is
tripped up by a change of current conditions, we suspect that support of 1162.60
will hold. Top of the uptrend channel in the December S&P comes in at 1174.80.
To really light up the upside, the S&P needs a clean sweep of bullish news
today, more weakness in crude oil and only a 25 basis point rate hike. The trend
is up!
FOREIGN EXCHANGE
US DOLLAR
The Dollar comes into the session this morning
hovering just above the downside breakout point on the charts. While the Euro
zone comments early this week seemed to discourage the downside in the Dollar,
that is still the trend until the technicals or fundamentals change. A former
Fed member hinted at the chance for an international crisis brought on by a
massive exodus of capital from the US and therefore some have suggested that the
Fed could decide to diffuse the exodus of capital threat, by hiking rates 25
basis points today and 50 basis points in December. In other words, some think
that higher rates will serve to check the flow of money from the US; even if
that type of move could serve to slow US growth before the recovery is firmly
entrenched. There is certainly the chance that the landscape could be changed
today by the Fed, but it could also be changed by a significant decline in
energy prices. However, until the market proves it has altered the down trend in
the Dollar, one should stay with the trend. In fact, about the only long play in
the Dollar, should take the form of a long shot play, like cheap out of the
money call plays.
EURO
After a correction, the Euro is seemingly poised to
resume the recent up trend pattern. However, we have to wonder if another sharp
rise in the Euro will bring about even louder calls for intervention. Euro zone
comments overnight seemed to focus on inflation readings and didn’t give any
hint to intervention. We think the market expects to see even higher Euro levels
before the ECB gets around to intervention.
YEN
The yen is showing some signs of vulnerability on
the charts, even though one would think that lower oil prices and stronger US
economic activity would be seen as a positive for the Yen. In the short term, we
can’t rule out a slide to 94.38, with thin resistance seen up at 95.02.
SWISS
With a former Fed member hinting at the potential
for an international financial crisis, off the flight of capital from the US,
and the Swiss already managing a fresh upside breakout overnight, it is clear
that flight to quality buying is already moving into the Swiss. We can’t target
the upside given the potential volatility but the only resistance seen on the
Swiss charts comes in off the monthly chart up at 90.00.
BRITISH POUND
After some recent choppy action, the Pound has
apparently righted the ship and is poised for new highs. However, we have to
think that would-be longs should carry some put protection into the FOMC meeting
today.
CANADIAN DOLLAR
The Canadian has had a pretty conclusive up trend
since May and in all likelihood will continue that trend, but today is a
critical inflection point and the longs might want to stay long but should
probably secure some put protection.
METALS
OVERNIGHT
London Gold Fix $435.10 +$2.80 LME COPPER
STOCKS 70,175 metric tons -850 tons COMEX Gold stocks 5.346 ml +2,766 oz COMEX
Silver stocks 103.0 ml +2,915 0z
GOLD
While the Asian trade is apparently waiting for the
FOMC, we have a hard time settling on the reasoning the gold market will use in
response to the meeting this afternoon. Since we doubt that higher interest
rates will alter the Dollar down trend, it is difficult to think that gold will
see much response to a 25 basis point hike. Certainly it is possible that higher
interest rates cause some traders to downgrade the economy and lower inflation
concerns and that could be seen as a negative.
SILVER
Given the correlation with copper this week, we
think that silver is temporarily pressured by the rate hike move but all in all
the silver isn’t tracking the macro economic situation that closely. After all,
silver is partially tracking gold and is partially tracking physical issues. Top
of the channel in December silver comes in at $7.59, with the middle of the
channel support coming in at $7.30.
PLATINUM
Unfortunately platinum didn’t manage to hold above
the recent trading range for long and that creates a weak technical picture. A
story out of Paris this morning is touting strong ongoing Chinese commodities
demand and that is usually the type of report that prompts platinum to rally.
However, the platinum market isn’t in the old bullish posture, as it appears to
be fighting just to hold its ground.
COPPER
While the copper market seems to have returned to
the bull track, we are not sure that the market will just skate through the Fed
meeting today without any negative impact. Chinese copper futures were mostly
unchanged but the Press continues to report tightness and that is supporting
prices in China. We would suspect buying interest to surface on weakness in
December copper, with the 135.50 level a critical pivot point and 134.10 a fresh
buying zone.
CRUDE COMPLEX
The trade pressed prices lower on Tuesday in
anticipation of another weekly crude stocks build in the report today. Some
estimates call for an increase of up to 3 million barrels and that would bring
crude stocks even to the prior year at the API. However, in order to say that
crude stocks have reached a normal level for this time of year, they still need
to climb above 295 million barrels.
NATURAL GAS
Even though natural gas continues to be
significantly cheaper than heating oil and even though the natural gas small
spec position is mostly washed out, we have to think that there is more downside
potential ahead before a key bottom is formed. If you want to be long for winter
needs, or a winter speculation, you might want to wait until after the API/DOE
reaction and you might want to consider aggressive risk control strategies. For
instance, being long February gas and long 2 February 650 puts for 300 each.