Futures Point To A Higher Open
12/2/2004
INTEREST RATES
While many in the trade are concentrating on
flattening yield curve plays, the overall market sits at a critical junction
from a technical and fundamental perspective. In addition to Treasury prices
sitting right on critical consolidation support on the charts, the market is
also faced with a major fundamental report on Friday. With the past months gains
in non farm payrolls rather impressive, and expectations for the Friday morning
report centering on a 190,000 to 200,000 non farm payroll gain, it is possible
that the trade could come away from the report tomorrow with the idea that the
US economy has finally turned the corner.
STOCK INDICES
The US equity market comes into the session this
morning poised for more gains, as energy prices are lower again overnight and
international equity prices are confirming the ongoing optimism by posting
similar gains to those seen in the US on Wednesday. With nearby crude oil prices
coming into the session this morning $10 below the highs, there is certainly a
chance that the economy could gather some more momentum. Apparently fund
managers Wednesday were confident enough in current conditions to throw money at
the market, and we suspect that more of that type of action will be seen today
as other managers rush in before the market leaves them behind.
DOW
We suspect that the December Dow is
headed to 10,727, possibly in the action today. Near term support in the
December Dow comes in at 10,532 and the market should at least have another
morning of upside gains, before the concern for the monthly payroll report
prompts some players to take profits.
S&P
With the market already into new
highs for the move this morning, and the momentum of the market positive, we
suspect that a 1200 trade could be seen today. However, the market sometimes
balks at significant even-number benchmarks, and it could be that prices rise to
that level and then setback temporarily through the US payroll report. Near term
support in the December S&P comes in at 1189.50.
FOREIGN EXCHANGE
US DOLLAR
size=2>While the US Dollar managed another new low for the move overnight, we
continue to think that a major fundamental change is taking place and that the
market is too stubbornly entrenched in the bearish Dollar view to realize that
change is underway. For instance, the US economy is growing but if you watch the
BBC or other anti American Press outlets you won’t get that sense. Also not
being noted is the fact that the Euro zone economy is falling back toward
recession, as Germany posted the worst employment reading in 6 years overnight.
We also think that the US Dollar suffered the most significant negative impact
off the threat of oil prices. In other words, the market sold the Dollar
repeatedly off the theory that the US was the most vulnerable to high oil and
now that crude oil prices have declined $10 off their highs, we have to think
that the Dollar deserves some bounce. We also think that the mid month trade
balance report will bring the second month in a row of a reversal in the
spiraling trade deficit and that could begin to change sentiment. In the near
term, the down trend might prevail, especially if the US payroll report fails to
meet expectations. However, if the payroll report Friday, exceeds expectations
that could be the death knell for the bears in the Dollar.
EURO
While
we aren’t prepared to buy the Dollar Index for a major bottom, we are prepared
to suggest buying a multiple put position in the Euro, for what could be a major
top in the Euro. The Euro is technically overdone and the fundamentals are
slowing aggressively in Europe. As mentioned before, the German unemployment
report showed another rise in November and now stands at 10.3%. According to
Bloomberg TV the German unemployment rate is the highest in 6 years. Since the
up trend is entrenched, we suggest that traders look to purchase 4 March Euro
124.50 puts for 25-27 ticks each, looking for a major top and potentially a
major leverage play on the downside.
YEN
size=2>Overnight the Yen forged an impressive pulse up but then gave back all
the gains. We continue to see rumblings of intervention but as of yet nothing
looks imminent. However, we have to think that there is the potential for a top,
at least a temporary top and that the Yen might see a slide back down to
consolidation support of 96.52.
SWISS
Up
trend support in the Swiss comes in today down at 86.63 and a trade below 87.04
could signal a more significant washout ahead.
BRITISH POUND
size=2>The Pound is certainly overdone following the recent gains but there is
little hint of any action from the BOE. Therefore, we have to think that the
Pound will continue to lead against the Dollar, but that the blow off rally in
the Pound since the mid November low, might be the beginning of the end in the
Pound bull market.
CANADIAN DOLLAR
size=2>Yesterday we suggested buying 2 June Canadian 79 puts for 50 ticks and
holding for a position play and we continue to stand by that play. However, in
order to violate some critical chart points and turn sentiment down, the
December Canadian must close below 83.86 today.
METALS
OVERNIGHT
size=2>London Gold Fix $454.35 +$3.25 LME COPPER STOCKS 58,700
metric tons -1,075 tons COMEX Gold stocks 5.374 ml Unchanged COMEX SILVER stocks
102.8 ml Unchanged
GOLD
While
the US gold market has managed a new high for the move in the early going, it
has also recoiled from the high. However, it should also be noted that the
Dollar also managed another new low overnight and that should put gold in a
solid position to rally today. While some traders continue to think that new
exchange traded gold funds will siphon off some investment interest from gold
futures, we think that the overall favorable buzz in the Press and Wall Street
means that all gold investments will remain in favor.
SILVER
While
the path of least resistance is up in silver, the market has made a double top
on the charts and has forged a massive compacted rise in a single session.
However, we got the sense that silver prices were being driven higher yesterday,
under a host of reasons like the expectation for growing investment demand,
growing physical demand and ongoing spillover buying interest from the gold
market. Unfortunately given the massive rise in silver yesterday, the market has
very little close-in support on the charts.
PLATINUM
It
is a little disappointing to see January platinum fail to forge new highs like
gold and silver but that probably doesn’t alter the fact that the track in
platinum remains bullish. Near term critical support in January platinum comes
in at $872 and the $881 level remains solid resistance. It would not be a
positive to see platinum exit this week without forging a new high.
COPPER
The
copper market did manage to reject early weakness yesterday but like platinum,
failed to forge a new high for the move, while the precious metals soared.
Because platinum and copper are relatively underperforming we have to think that
is because the Chinese haven’t showed themselves clearly over the last two
weeks. Chinese copper futures lacked direction overnight and that would seem to
leave the US copper market weak and more dependent on favorable US equity market
action and the overall view on the economy.
CRUDE COMPLEX
The energy complex was mostly shocked by the larger
than expected build in API distillate stocks (+4.4 million barrels). We also
think that minor builds in crude oil stocks and sharp rise in the refinery
operating rates hinted at the potential for even more builds in the coming
weeks. While we doubt that the market will see an extended pattern of rebuilding
it is possible that the near term outlook for prices remains negative.
NATURAL GAS
size=2>Even though natural gas faded into the close Wednesday, we were still
impressed by the fact that natural gas didn’t come unglued during the massive
slide in heating oil and crude. In the near term, it is also possible that more
price declines are seen and that the weekly inventory report in natural gas this
morning will create another major volatility flash. With the last inventory
withdrawal a major bullish surprise and that report now fully in question, the
report this morning could completely undermine the market, or could instantly
rekindle optimism.