Futures Point To A Higher Open
2/23/2005
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INTEREST RATES
While the Treasury market remains undermined on
the charts, we are not convinced that the market needs a significant downside
extension. Certainly the CPI report this morning has the potential to force
prices down to an even lower level, but we doubt that the CPI will have the same
type of zip seen in the last PPI report. We also suspect that Dollar action
today will be a little more reserved and that could in turn could alleviate some
of the “rotational” liquidation pressure on Treasuries.
STOCK INDICES
The stock market remains under the gun and with
the market alternatively fearful of inflation, rising interest rates, rising
energy prices, a falling Dollar and mostly lackluster growth readings, we see no
reason for prices to halt their downward motion. Even though the International
Community seems to be coming together a little over the Iraq issue, the outlook
for future economic growth is being tempered by renewed concerns of rising
energy prices. While the massive rally in energy prices yesterday undermined
stock prices, we suspect that an equal portion of the selling was inspired by
the sharp decline in the US Dollar and concerns that the US debt situation could
drift out of control.
DOW
As suggested before, the Dow sits significantly above the consolidation low
support level of 10,500 and that could mean more losses are ahead. While the
10,600 level might offer up some initial support, we suspect that a sub 10,500
trade is in the cards. In fact, the market might actually gun for the 100 day
moving average level down at 10,451 later this week. In conclusion, rising
energy prices, fears of inflation and ideas of even higher interest rates is not
the type of information that benefits the large Cap stocks in the Dow.
S&P
After a massive range down washout on Tuesday, the S&P would seem to be poised
for even more losses. In fact, until we see a big range down move, (that is
rejected within a single session) we will hold off on predicting a bottom.
Downside targeting in the March S&P comes in at 1179.50 but the 100 day moving
average is all the way down at 1172.95. In the event that CPI comes in less than
+0.2%, aggressive traders might look to see a temporary rally up to 1189.10.
FOREIGN EXCHANGE
US DOLLAR
While the foreign central bank rotation theme is
being balanced somewhat in the early going today, the Dollar remains injured and
easily poised for even lower action. We doubt that the market will react
significantly to the US CPI reading today, as the reaction to the PPI report
last week, wasn’t that significant. We also suspect that a slight “coming
together” on Iraq in the International Community serves to mitigate the pressure
on the Dollar, but that won’t alter the overall course of the Dollar. In fact,
we are not sure if there is a quick fix to the recent weakness in the Dollar, as
the number of issues weighing on the Dollar seems to be quite lengthy. The
Diversification issue looks to remain the dominating element in the Dollar,
especially with a Wall Street Journal front page article this morning suggesting
that international diversification is prompting investors to move away from US
stocks! We do think that the Dollar overreacted to the South Korean news over
the long weekend, but once the Dollar returns to the prior day’s highs around
82.87, we suspect that resistance will become more formidable. If the 82.87
level fails to hold the Dollar down, we suspect that even numbers up at 83.00
will restrain the Dollar.
EURO
Since the Euro reached such a compacted overbought
condition so quickly yesterday, we suspect that a back and fill action is
needed. Near term corrective support comes in at 131.88 and then again down at
131.78. Slightly weaker than expected German Ifo readings overnight undermine
the Euro, but we doubt that the market is tracking off the scheduled numbers.
The German Ifo was 95.5 versus the prior reading of 96.4 so a minimal decline
was posted.
YEN
The Yen really didn’t have the domestic economic
pace to forge the rally yesterday, like the Pound or the Canadian, and therefore
a steeper technical correction is anticipated. In fact, the METI reported
Industrial activity to have declined in December, which is evidence of the
domestic vulnerability. Near term downside support in the March Yen is seen at
95.15 and then again down at 94.66. One must note that the Yen fell back below
the 100 day moving average yesterday!
SWISS
Like the Euro, the Swiss probably reached an
extensive overbought condition around the highs Tuesday and that should mean a
more spirited corrective dip today. Near term downside targeting is seen at
85.68. The 100 day moving average is all the way down at 84.76.
BRITISH POUND
We continue to think that the Pound has the
strongest macro economic condition, even if the currency is somewhat overdone
technically. However, on a minimal pull back to 190.20 we would be a buyer of
the March Pound. We think the Pound has just returned to a new trading range
that is bound by 190 and 193.
CANADIAN DOLLAR
A number of critical technical points sit just above
the current market and to throw off the general down trend pattern (in place
since the November high) the March contract has to get above the 100 day moving
average at 81.63 or above the down trend channel line up at 82.29.
METALS
OVERNIGHT
London Gold Fix $433.25 +$2.50 LME COPPER
STOCKS 53,125 metric tons -2,000 tons COMEX Gold stocks 5.916 ml +2,379 oz COMEX
SILVER stocks 101.8 ml +974 oz
GOLD
While the Dollar is higher and gold slightly lower
in early action today, we suspect that the market remains poised to extend the
recent gains. In fact, with reports of strong jewelry demand in China and the
expectation of additional Dollar declines, the bull camp would seem to remain in
control. However, with The US reporting CPI this morning and the market already
anticipating a slight expansion in inflationary concerns, it is possible that
gold will be unable to directly continue its recent pattern of gains.
SILVER
While the silver market has maintained a solid
pattern of higher lows, it would seem to have reached a moderately overbought
short term condition around the highs yesterday. As we suggested in gold today,
we suspect that the CPI report will be a slight letdown but that fund buyers
will show interest on minor weakness. Near term support in May silver is seen
down at $7.45 and then again down at $7.37.
PLATINUM
A key platinum producer reported a sharp increase in
profits but most of that performance came from issues unrelated to production
and therefore there would not appear to be a marked change in supply
expectations. Near term critical support in April platinum comes in at $864,
with near term resistance seen at $877. The bias remains up but risk and reward
of fresh longs would seem to be rather unattractive considering the relative
proximity to the all time highs.
COPPER
After the big pulse up yesterday, the copper market
seems to be a little overdone and exhausted. However, with one of the bigger
daily declines in LME warehouse stocks over the last month posted overnight
(-2,000 tons) the market could see buying support materialize after a minimal
decline in prices. Reports out of China would seem to suggest that current
supply conditions are adequate and that might serve to mitigate the recent bull
tilt.
CRUDE COMPLEX
In the early going today prices have settled back
in the wake of talk from OPEC that they could decide to expand production in the
event that prices continue to rise. However, the newest supporting theme for the
bull camp is the idea that Saudi Arabia appears to have changed the OPEC pricing
mechanism from a floor and ceiling price driven model, to one where OPEC
decisions are driven by the days of supply calculation. Apparently the market
thinks that the Saudi’s recently suggested that they would consider cutting
production in the event that commercial oil inventories in developed countries
were to rise above 52 days.
NATURAL GAS
The natural gas market can’t seem to get much of a
lift from the sharp rise in crude oil. However, the BTU price relationship
between natural gas and crude oil continues to adjust closer to the recent
historical extreme and that is already underpinning natural gas prices.
Unfortunately, the rise in crude oil has lifted May natural gas prices up to the
top of the down trend channel, that has been in effect since the October high,
and that makes a fresh long play unattractive.