Futures Point To A Higher Open
1/26/2005
INTEREST RATES
The Treasury market forged what appears in
retrospect to be a key reversal on Tuesday, as a new high in prices was soundly
rejected in a rather compacted fashion. After seeing the long end of the market
enjoy a number of sessions of favor, it was not surprising to see the long end
encounter aggressive profit taking in the slide yesterday. Some traders
suggested that the reversal was only partially the result of better than
expected US economic data, while others suggested that the presence of supply
provided the main catalyst for the setback.
STOCK INDICES
Sentiment turned yesterday, as some bargain
hunting buying was seen in the wake of better than expected US economic
information and some pretty encouraging corporate earnings information. With key
bellwether stocks like U.S. Steel and Johnson and Johnson releasing better than
expected earnings, it seems that some investors upgraded their view of near term
conditions.
DOW
As suggested before, the March Dow has gapped higher overnight and that action
comes after some rather impressive action yesterday. We have to wonder if the
bargain hunting buying seen yesterday, will become buying today from fund
managers and investors that are afraid to miss out on a strong run up. Near term
upside targeting in the March Dow comes in today at 10,529 and then again up at
10,558. A down trend line in the March Dow is taken out with a rise to 10,535
today.
S&P
The chart look in the S&P isn’t nearly as impressive as the look in the Dow.
However, we suspect that the S&P will track the Dow and attempt to rise to
resistance of 1175.40. An even higher targeting is seen up at 1176.40, with a
down trend channel line taken out with a rise to 1186.30.
FOREIGN EXCHANGE
US DOLLAR
The Dollars initial rally on Tuesday seemed to come
off the idea that China was considering the necessary procedures for a
revaluation of their currency, but once again China also made it clear that any
change would take time. After the initial rise in the Dollar, the market bought
even more Dollars off the better than expected economic report flow from the US.
Overnight the market has set the Dollar back down below the upside breakout
point and below the critical pivot point of 84.00 and that is disappointing for
the bull camp. However, macro economic conditions in the US are being upgraded
slightly and the US equity market might have a little upside extension capacity.
We also think that the market could be attempting to look beyond the coming
Iraqi election and that could provide the Dollar with yet another bullish
catalyst. We also think that slightly better than expected Euro zone numbers
this morning, have tripped up the Dollar in the early going and that in order to
reverse the selling tilt, the US will need good numbers and much higher US
equity price action.
EURO
The Euro was given a surprise lift this morning by
German economic survey figures, which came in much better than expected.
However, countervailing the favorable German economic survey readings were
suggestions from the Germans that 2005 growth expectations were only +1.6% from
+1.7%. The German Ifo Index rose to 97.6 from 96.5 and that could go a long way
toward securing solid support in the Euro down around 129.64.
YEN
The Yen has managed to recoil from the recent lows
and might be lifted by the idea that China is no closer to a re-peg of their
currency. On the other hand, the Yen would seem to have significant overhead
resistance on the charts and might be a sell in the event that the March
contract manages a rally to 97.28 today.
SWISS
The pattern of lower highs remains very much in
place and with a rally to 84.44 today we would suggest that aggressive players
get short the Swiss with a stop up around 84.91.
BRITISH POUND
One can’t ignore the fact that the Pound is sitting
just under an extremely critical upside pivot point on the charts. While the UK
4th quarter GDP was slightly above expectations, the +0.7% gain isn’t that
impressive but apparently the trade is willing to buy the Pound even after a
moderate rise off the recent consolidation lows. Therefore it would seem like
something bullish is cooking in the Pound, but that simply makes us suggest a
higher sell point of 187.83.
CANADIAN DOLLAR
The Canadian fell below critical chart support
yesterday in the wake of a surprisingly disappointing economic outlook from the
BOC. However, we don’t get the sense that the Canadian is primed for a downside
breakout on the charts and the risk and reward of being short below 81.20 is
really unattractive to us.
METALS
OVERNIGHT
London Gold Fix $423.70 -$2.60 LME COPPER
STOCKS 43,750 metric tons -375 tons COMEX Gold stocks 5.912 ml -15,795 oz COMEX
SILVER stocks 102.3 ml Unchanged
GOLD
The gold market should have less pressure today as
the Dollar has once again fallen back from an upside breakout on the charts.
However, the gold market is showing only a minimal upside action overnight and
the Chinese gold market was lower overnight so that seems to mitigate the
slightly positive early tilt. We might note that the news wires are rife with
reports of gold companies reaching production targets and that would seem to
keep the physical component of the gold market in the bear camp.
SILVER
While the silver market continues to hold above
critical moving average levels on the charts, many traders have to be
disappointed by the failure to rise off the Chinese growth news Tuesday morning.
However, it would seem like the silver market is seeing some persistent favor,
as prices could easily have extended the downside and returned to the $6.50
level on the break yesterday but instead the market held together. Like gold,
the silver market just isn’t seeing any movement on the supply front that would
seem to suggest a tightening of supply or for that matter an increase in
investment interest.
PLATINUM
We just can’t get comfortable with April platinum
prices holding so high in the trading range, but with the favorable Chinese
growth news yesterday, we can understand the market seeing prices underpinned.
Critical pivot point support in April platinum would seem to come in today at
$859.5 but we have to think that the risk and reward setup favors the bear camp,
especially when one considers the current price level relative to the historical
highs.
COPPER
The copper market showed some moderate weakness
overnight but has managed to reject some of the losses. However, there would
seem to be some divergence with the Chinese copper futures market lower and the
prompt market holding together. Unfortunately for the bull camp in copper, the
market is confronted with news of rising copper production (+5.6%) at
Antofagasta for the most recent fiscal year.
CRUDE COMPLEX
We suspect that the lower early action today is
an attempt to factor in another slightly bearish weekly inventory reading.
However, with energy prices managing another new high for the move yesterday it
is clear that the bull camp generally continues to control prices. Surprisingly
the energy complex managed the generally higher action Tuesday in the face of
suggestions from OPEC that the cartels hands were going to be tied in the coming
meeting, due to already high prices and mostly tight ongoing winter conditions.
NATURAL GAS
We think that the action Tuesday in the natural gas
market was a little more realistic, as prices probed above the prior sessions
high, but could not manage a close above the prior session. In other words, we
expect slightly higher price action, as long as crude oil is strong but without
strength in the rest of the complex, we are extremely skeptical of gains in
natural gas. We just don’t see enough cold weather, or the expectation of an
OPEC production cut to see natural gas do anything other than keep relative pace
with the BTU pricing of crude and heating oil.