Futures Point To A Higher Open
12/27/2004
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INTEREST RATES
The Treasury market seems to be a little soft
despite what would appear to be another downward adjustment in the US Dollar.
However, it is possible that the Treasury market is looking at the recent equity
market strength, softness in energy prices and the upward revision in holiday
sales activity and is growing a little concerned about a stronger economy. We
also think that some players are fearful of a massive long fund position in the
weekly COT report that will be released after the close tonight.
STOCK INDICES
Despite the woes in Asia off the weekend tidal
wave disaster, it would seem like the US equity market is poised for a positive
opening. Apparently the US retail industry is raising its expectation for
holiday sales, to an 8.1% increase over last year and that is giving the market
a fresh lift. Some chain stores reported heavy gift card sales and those to
developments might give sales readings yet another lift in the near future.
DOW
The March Dow appears to have managed a very impressive gap up trade overnight
and with upgrade in holiday sales, we would not be surprised to see the March
Dow run quickly up to even numbers at 11,000. However, in order to drive the Dow
directly to 11,000, the trade needs help from lower energy prices and a
favorable consumer sentiment reading on Tuesday. While some analyst’s continue
to fret over the weakness in the Dollar, the market seems to have the capacity
of discounting that issue. In fact, given the strong upward pulse overnight, the
March Dow probably won’t alter the mostly bullish tilt, unless there is a trade
back below 10,838.
S&P
While the S&P remains below last week’s high, it is also poised for an upside
breakout on the charts. While some suggest that current earnings and interest
rates, fail to justify current stock prices, we suspect that the stock market is
in the process of factoring in another improvement in the economy, off the
better than expected holiday sales in the US. Near term upside targeting in the
March S&P comes in at 1217.50 and then again up at 1220.10.
FOREIGN EXCHANGE
US DOLLAR
Without the benefit of the overnight Dollar Index
pricing, we can only surmise that the March Dollar will eventually open right
around the early December lows. At least in the near term, the market is willing
to pressure the Dollar despite the travails in Asia and the strong upward
revision in US holiday sales. Apparently the market remains fixed on the
prospect for disinvestment away from the Dollar and the soaring US trade and
budget deficit situation. In other words, the mentality of the August through
early December time frame remains entrenched, even in the face of some recent
change. Therefore, we suspect that the Dollar will fall to levels that will
inspire intervention talk, but we are not sure that actual intervention will
take place due to the residual of the holiday and talk from Japan that
production into China is saving them from the negative influence of the Dollar
decline against the Yen. In the near term, a moment of truth might be ahead, as
macro economics would seem to discourage an all out attack of the Dollar, but
the technical setup would seem to be fully enveloped in the bear camp. We doubt
that the March Dollar will avoid a decline below 81.05 but those that are long
Dollar calls should attempt to hold into the action Tuesday morning.
EURO
The Euro exploded higher in the early action today,
but currently sits well off the overnight highs. We suspect that little will
halt the upside action unless there is dialogue from the ECB, and given the
partial holiday action in some European markets, we doubt that official dialogue
will be forth coming today. Therefore, expect the Euro to trade in a range bound
by 134.90 and 135.60 basis the March contract.
YEN
The Japanese Government posted a decline in the Big
Company activity readings, with the October through December period contracting
to 2.1 from a prior 9.6 reading but in looking forward to the January through
March Index forecast, the Japanese government predicted an increase back to 4.1
and then a leveling out in the April through June period. According to the front
page of the Wall Street Journal, the Japanese market hasn’t been overly
concerned about recent Yen/Dollar movement, because of sales and production
improvements into China. Therefore, it doesn’t seem like the BOJ is poised to
repel a continued rise in the Yen. However, the Yen has a no-mans land between
97.10 and 97.27 and we are not totally convinced yet that the Yen can rally
without the benefit of thin holiday conditions.
SWISS
Like the Euro, the Swiss managed an impressive
upside breakout but then gave up the gains, as if to signal a blow off top.
However, in order to alter the upward track in the Swiss, optimism will have to
be spilling out rather aggressively from the US equity market. Technically the
bulls are in control, but fundamentally there is a flaw in the bull argument for
the Swiss.
BRITISH POUND
We suspect that the Pound was saved by the Dollar
reversal last week, but we doubt that the Pound will be able to mount a rally
above the critical pivot point of 192.00. Weak UK housing data in conjunction
with recent UK deficit concerns should keep players from pouring into the long
side on the Pound.
CANADIAN DOLLAR
Certainly the recovery off the lows last week, gives
the bulls hope, but until the March manages a close above 81.80, we will remain
negative toward the Canadian. In fact, after a slight bounce today we will look
to add to our recent long put suggestion.
METALS
OVERNIGHT
London Gold Fix $442.40 Closed LME COPPER
STOCKS 51,125 metric tons n.a. Closed COMEX Gold stocks 5.644 ml -96 oz COMEX
SILVER stocks 104.0 ml Unchanged
GOLD
With the Dollar ending last week at the lowest
levels since early December, it would seem like a re-test of the lows in the
Dollar is in store. With the gold small spec and fund long position holding at a
rather lofty level, we initially feared a year ending liquidation, but with the
Dollar showing signs of a late in the year failure, we suspect that the market
might instead push up gold prices to end the year. Just as in the stock market,
where the funds will sometimes press for added yield, it is possible that the
spec crowd bids up prices into the waning days of the year.
SILVER
While the silver market continues to be held back by
the top of the recent consolidation, it is also clear that the trade is holding
prices right on an upside breakout point on the charts. While the COT report (to
be released after the close today) might show a moderately overbought condition,
we still think that silver will continue to favor the long side, as long as the
Dollar is soft again and gold is providing positive leadership. We also think
that upwardly revised holiday sales figures and favorable equity price action
adds to the mostly bullish stance in silver.
PLATINUM
The platinum market has forged an impressive upside
breakout in the early going today and that reverses a topping mentality that
surfaced off a series of highs around $843. Given the upside breakout we suspect
that a run up to $855 is possible in the coming weeks. However, platinum will
need favorable leadership from gold and possibly positive gains in equity prices
to reach the $855 target.
COPPER
Last Friday the Shanghai copper stocks showed
another increase of 4,419 tons and that has to be considered a slight negative,
especially when one considers the recent pattern of readings from that critical
area. While the copper market hasn’t exactly paid close attention to the
physical supply and demand condition, seeing Chinese stocks rise slightly has to
discourage some bulls. With the Chinese government apparently moving to end the
tax free status of refined copper exports, one might expect more copper to
remain inside the country.
CRUDE COMPLEX
The energy complex seems to be caught within a
rather wide trading range but will probably have a negative bias early this
week. While we continue to think that the massive slide following the most
recent inventory report was overdone we doubt that the market will avoid more
selling. We initially thought that the December 22nd lows would be solid support
but with near term mild weather we are not as convinced of that view.
NATURAL GAS
Considering the mild weather, the weakness in the
regular energy complex and the fact that solid support isn’t seen until the 6.55
level in the March contract, we have to expect more downside ahead. In fact,
with a large portion of the Midwest seeing above freezing lows, through the end
of the week, we wouldn’t be surprised to see the March fail at the 6.50 level.
While the natural gas market saw a triple digit draw (-123 bcf) last week, that
draw wasn’t enough to stop the pattern of expansion in the annual surplus, which
managed to reach a level of 328 bcf.