Futures Point To A Higher Open
12/21/2004
INTEREST RATES
Some of the weakness seen off the December high
might have come from continued heavy flow of foreign debt, but we have to think
that the ability to bounce off the recent low will come compliments of lower
inflation expectations and possibly even budget restraint expectations.
Naturally the Treasury market is hesitant to simply accept the first political
call for reduced deficits as a future reality, but if the President remains on
that message, the prospect of fiscal responsibility might actually end up giving
the bulls a helping hand. In addition to the prospect of reduced future Treasury
supply, seeing the potential for a cutback in spending could actually serve to
reduce the growth outlook and that in turn would be supportive of Treasuries.
STOCK INDICES
The stock market should have been supported by
the initial positive leadership in the Dow yesterday, as that closely watched
bellwether issue almost managed a return to the highest level in 3 1/2 years.
The trade should have been boosted by news that the leading indicators came in
up +.2%, especially after the early expectation for the report called for a
decline of.1%. With the market also seeing energy prices down sharply and
holiday sales expectations sales showing an up tick, one would have expected the
market to show more positive action yesterday, but apparently the market has an
affinity for the bottom of the recent consolidation.
DOW
While the March Dow has managed to bounce away from critical consolidation
support at 10,677, the big probe down Monday undermines a number of technical
systems. However, if any sector can shake the bearish tilt, it will be the Blue
Chip sector and a rise above 10,700 in the early going today, could go a long
way toward reversing the existing bearish tilt.
S&P
The March S&P has extremely critical pivot point support at 1198.30 and an even
more critical pivot point support down at 1195.30. Typically the S&P seems to
follow through with a 2-3 day down pattern, following such a clear failure at a
high. However, by our measures today would be the third day down, and that might
create the chance of a low in the morning trade.
FOREIGN EXCHANGE
US DOLLAR
The Dollar isn’t doing a very good job of convincing
the trade that it is trying to bottom. While some analysts think that recent COT
report readings showed a shift in speculative sentiment toward the Dollar, it
would not seem like US economic readings are going to be the basis behind a
sudden recovery in the Dollar. Even with the Fed’s Lacker suggesting that the
Dollar decline is set to promote US exports and discourage imports, it would not
seem like the market is ready to embrace the Dollar. Even more surprising is the
fact that the Dollar didn’t rise much on the aggressive deficit talk from
President Bush. In short, seeing developments that would seem to begin repairing
both of the twin US deficits hasn’t done much to spark buying of the Dollar. In
fact, the Dollar has really disappointed from a technical and fundamental
perspective. We continue to think that a bottoming is in process, but given the
reaction to recent news, it would seem like the bears still retain near term
control over prices. Extremely critical support in the March Dollar is seen
today at 81.75 and then again down at 81.49.
EURO
According to a Dow Jones News article, the COT
report showed the first major shift in speculative sentiment toward the Euro in
3 1/2 years. However, given the slide off the December high in the Euro, we can
understand a temporary lack of confidence on the part of the bull camp. Now it
would seem like the market has regained some footing and might attempt to retest
the highs. Given the proximity of the holidays, we suspect that the Euro will be
able to make a new high before the intervention effort manages to react. Even
after a new high in the Euro, we are not ready to concede that the big trend in
the Euro will extend into the future.
YEN
The Yen has forged a significant reversal and with
some analysts a little concerned about Japanese growth, we would not be
surprised to see the March Yen slide back down to consolidation support at
96.00.
SWISS
One still can’t fault the charts in the Swiss, as
they seem to support the bull case. However, the Swiss does have significant
overhead consolidation that could make it difficult to rise above 88.00. In
fact, we see a greater chance of new highs in the Euro, than we do in the Swiss.
BRITISH POUND
Like the Yen, the Pound seems to have launched into
an aggressive profit taking posture and considering the magnitude of the run in
the Pound off the December low, a correction was to be expected. Near term
downside targeting comes in down at 191.76.
CANADIAN DOLLAR
The Canadian has fought back to within striking
distance of an upside breakout, but it also took several days of US Dollar
weakness just to wake up the bull camp. Therefore, in order to turn the trend
around, the March Canadian will have to manage a close above 81.82 today.
METALS
OVERNIGHT
London Gold Fix $441.75 -$.35 LME COPPER
STOCKS 52,560 metric tons -1,700 tons COMEX Gold stocks 5.597 ml -34,310 oz
COMEX SILVER stocks 104.5 ml -18,971 oz
GOLD
So far in the early going, February gold has
maintained an inside day following the range up probe on Monday. In order to see
the bulls regain control over the market, the March Dollar will have to manage a
slide back below 81.68 or the market will have to pay more attention to the
Bundesbank gold sale story. Apparently the Bundesbank might not take advantage
of their gold sale allocation and that would be bullish but it seems that
signatures to the gold sales agreement can transfer part of their sales quota to
others and that could mean that just as much supply finds it way to the market.
SILVER
While the silver market appears to have an upward
bias, the market will probably have fairly solid consolidation resistance around
$6.955, unless the gold market is providing stronger upward leadership. The
current consolidation is becoming rather extended at 9 days and that equals the
duration of the September consolidation! In the short term, we are not sure what
the silver market is following and that is probably why the market is simply
marking time on the charts. A trade back below $6.83 could unseat the slightly
bullish tilt and target a downside objective of $6.68.
PLATINUM
Extremely critical resistance is seen at $843 basis
the April contract and with platinum sitting almost in the middle of a massive
trading range forged over the last month it is clear that some market players
are confused. In fact since December 1st, the April platinum trading range was
very wide at $804 to $884. In other words, the market managed to mount an $80
range without much in the way of fresh and significant fundamental information.
COPPER
The market continues to grind higher and is doing so
without much in the way of positive leadership from the Asian market. However,
Chinese copper prices were up overnight and the market is apparently reacting to
the positive stories seen in other base metals markets like zinc and aluminum.
While Chinese copper cathode imports declined in November, that reading was
offset by a 39% increase in November concentrate imports.
CRUDE COMPLEX
The energy complex managed to break further
Monday than one would have expected given the fundamental mix. In fact, we saw
enough evidence to support a rally Monday but maybe the market was simply
overdone from the prior week’s action. Ongoing cold in North America, promises
from OPEC and they will not allow future supply debacles and lastly confirmation
that the fund position in the energy complex is hardly even net long should have
been enough to discourage sustained weakness in prices.
NATURAL GAS
The natural gas continues to lead the regular energy
complex on the downside and apparently the market is being undermined by milder
weather forecasts than was originally predicted for the end of the year.
However, one might also note that the lows this last weekend, and the lows
expected in the coming days, have come in much colder than the forecasts floated
last week, and that should have provided some support. The energy complex still
hasn’t learned what the grain markets know, and that is weather forecasters
can’t predict more than three days in advance.