Futures Point To A Higher Open
12/7/2004
INTEREST RATES
A widely watched Bond fund manager continues to
pound away at US Treasuries by suggesting that the US is no longer a Triple A
rated entity. William Gross specifically suggested that seeing the US with a
Triple A rating is wrong, because the US doesn’t really have the ability to pay
its bills over a long period of time. Gross is apparently growing more concerned
about the twin deficits and the rising costs of Medicare and Social Security.
STOCK INDICES
The stock market started the week out with a bad
combination yesterday, slightly negative holiday sales dialogue and an attack on
the US Consulate in Saudi Arabia. However, stocks were only minimally impacted
by higher oil prices yesterday and with oil prices back down in the early going
today, and possibly poised to track lower into the weekly inventory reports on
Wednesday, we have to think that the outside issues today will be a little less
damaging. Since the market did see some signs of leadership yesterday, it is
understandable that many fund managers bought early weakness and with the fund
managers providing support on weakness, that serves to temper near term
bearishness.
DOW
The December Dow seems to have little support until 10,522 and 10,500. However,
we doubt that the market will be confronted with enough negative news today to
send prices down to even lower chart support of 10,478.
S&P
The December S&P sits right on long term up trend channel support at the
overnight low. The December S&P has a close-in pivot point at 1189.20 but to
turn the trend back up the market will have to manage a surprise climb above
1193.60.
FOREIGN EXCHANGE
US DOLLAR
The hope that a change at the US Treasury would
result in a renewed emphasis on a strong Dollar is fading, as the market isn’t
that impressed with the potential replacement to Snow, or the market simply
isn’t that optimistic on the economic growth track of the US. With a potentially
negative Challenger layoff report this morning rekindling concerns for the US
employment situation, we have to think that more selling pressure is ahead for
the Dollar. Some traders think that intervention is poised to surface, but given
recent comments from German officials we have to think that it will take a
substantial and compacted decline in the Dollar to pull the ECB into the market.
It would also not seem like the US is anywhere near pulling the trigger to
support the Dollar, unless the Fed decides to do something unilaterally.
Therefore, assume that the trend is down and expect new lows today.
EURO
With tacit remarks from a German official regarding
the Dollar, we suspect that the market is poised to push the Euro to another
even higher trading range. With German ZEW readings overnight coming in above
the prior month’s readings, it would seem that the numbers from the Euro zone
have gotten better over the last week and that should simply facilitate the long
interest in the Euro. Near term upside targeting in the Euro comes in at 135.30
and support should be encountered down around 133.90.
YEN
The BOJ is mostly silent, but the Yen doesn’t seem
to be as strongly positioned on the charts as the Euro. In fact, the December
Yen will have trouble climbing above critical consolidation resistance at 97.70,
unless the US economic numbers are soft enough to facilitate an enhanced wave of
Yen buying.
SWISS
Critical tend line support in the December Swiss
comes in at 87.16 today and at 87.37 on Wednesday. Therefore, the up trend
pattern in the Swiss is rather steep, which indicates a chance for wild
volatility.
BRITISH POUND
There should be little to restrain the Pound in the
coming two sessions. In fact, we suspect that the Pound will manage a climb to
196.20 in the coming two sessions.
CANADIAN DOLLAR
In order to shake the damaging technical setup and
de-link itself from the Dollar decline, the Canadian will have to manage a rise
above 83.99 today. Without a counter to the growing negative tilt, we think that
the Canadian could see long term liquidation. However, the big picture trend is
still pointing up and multiple put options seem to be preferable to short
futures positions.
METALS
OVERNIGHT
London Gold Fix $453.05 -$1.00 LME COPPER
STOCKS 57,600 metric tons +375 tons COMEX Gold stocks 5.374 ml Unchanged COMEX
SILVER stocks 102.8 ml Unchanged
GOLD
The gold market continues to consolidation in a wide
sweeping range of $450 to $458.2, but with open interest declining slightly
since November 22nd that would seem to diffuse part of the overbought situation
brought on by the near record small spec and fund long position. It is pretty
clear that the gold market is tied to a lower Dollar pattern but we also think
that higher equity market action is another development that could serve to lift
gold prices, as that day to day correlation has strengthened lately. Chinese
spot gold was higher overnight giving the market a slightly better tilt than was
seen yesterday morning.
SILVER
Apparently the consolidation in the gold market is
not enough to provide support to the silver market, which is exhibiting some
vulnerable action on the charts since the recent high. The silver market is
sitting on an all time high spec and fund long position and given the bulge up
late last week, even the record posted in the last COT report has probably been
usurped. Therefore, the silver market is perhaps the most vulnerable of all the
metals, especially if the March contract fails to hold above $7.88.
PLATINUM
With open interest extremely high, the Chinese
showing little interest in the market and the year end looming, we have to think
that platinum is vulnerable to a quick slide back toward consolidation support
down around $850. Critical trend line support in January platinum comes in at
$859.
COPPER
The copper market has reduced some of the downside
threat with the recent consolidation but we are still disappointed with the day
to day action in the Chinese copper market. In other words, the Asian realm
isn’t providing as much activity and support as was seen during the September
and November rally windows. With a slack economic outlook and a minor increase
in exchange stocks, we can understand why would-be longs have backed away from
the market.
CRUDE COMPLEX
The energy complex is attempting to consolidate
above last weeks lows but the bull camp has to be a little disappointed with the
price action Monday. We would have expected to see a much more significant rally
in the wake of the massive slide forged last week, but even in the face of
renewed terrorism activities in Saudi Arabia, potential problems in Nigeria and
supply difficulties in Norway crude oil prices failed to respond as they have in
the recent past. In fact, considering the breadth of bullish news Monday morning
we would have expected crude oil to rally $1.00 or $2.00.
NATURAL GAS
Natural gas prices appear to be poised to launch
into a weak short covering rally. However, we are fearful that the regular
energy complex is poised for another leg down and that could drag natural gas
prices back to the recent lows. Given the weather, the expectation for rising
crude and natural gas stocks, we have to think that a re-test of $6.50 is
possible in the wake of the coming Thursday morning inventory report.