Futures Point To A Higher Open




It is pretty clear that the Treasury market is
seeing the economic glass as half empty, because the market managed to forge an
impressive rally yesterday in the wake of a baseline retail sales reading, that
came in better than most expectations. However, some economists suggested that
the "excluding autos" component of the retail sales report shows ongoing retail
activity was anything but robust. Even after the overnight Press played up the
idea of better than expected holiday sales period, the bull camp seems to be
capable of propelling Treasury prices even higher.


The stock market just can’t seem to turn around
sentiment and now it would seem like a larger portion of the trade is growing
disgruntled with the current contra seasonal sentiment. Typically the stock
market sees a Honeymoon of sorts in the first part of January, as the Press
throws around hopes of increased savings and investment activity, the
expectation of big retirement fund contributions and other "New Year’s"
resolutions, but this year the market seems to have priced in pretty favorable
conditions into the end of 2004 and is apparently disappointed with forward
looking expectations. Certainly economic readings have disappointed, energy
prices have climbed back to levels that are really hindering the economy and
most importantly the stock market itself isn’t even embracing bullish internal


The Dow has managed to bounce off an even number support point of 10,500 but we
are still not expecting a solid bottom in prices. In fact, we suspect that
prices will make a run at the early December low of 10,442, but in the end will
manage to hold above that level and leave the pattern of higher lows in place.
Given that the last COT report reading showed the Dow futures at a record long,
we just don’t think that the recent liquidation has effectively brought the
market into technical balance and furthermore the stock market isn’t even giving
bullish fundamental developments any consideration.


The pattern of lower-lows remains in place and we continue to look for a more
significant and aggressive spike down washout pattern as a sign of a key low.
Unfortunately the current setup might require a throttle down to 1172 before we
would expect a technical low to form. Over the last week, the S&P doesn’t even
seem to be paying attention to fundamental developments and apparently pension
fund managers are not yet enticed into the fray by slightly lower price action.
Therefore, it might take significantly lower price action to bring in the



The Dollar has managed a surprising rise over the
last 36 hours, as the US economic reports were interpreted by the US Treasury
and Stock markets to be disappointing and most importantly, the market has been
able to down play the latest Trade Deficit debacle. However, it is possible that
the ongoing threat of perpetually higher US interest rates is providing the
Dollar with some support. In fact, the US Fed has never been shy about hiking
interest rates, even when there is little evidence of inflation. Therefore, it
is possible that a contractionary PPI reading this morning is of little
consequence to the Dollar. However, we would be very surprised to see the March
Dollar manage to climb back above the January high, as that would mean that the
Dollar managed a recovery, after a significant throttling and did so without the
help of fundamentals. In other words, seeing the Dollar get back above the
January high would be considered a monumental development and a trend changing
signal. We might note that a return to the January highs would probably put the
Dollar close to the 100 day moving averages and that is something the funds
might be watching closely.


Those that are long the Euro have to be extremely
disappointed because they got almost everything one could ask for from the
numbers this week and in the end the Euro simply failed to impress. In fact,
even after the Euro numbers turned to the better, the Euro has returned to a
very critical failure point on the charts. Overnight European auto sales
readings were the best in 5 years and yet the Euro is being sold! While we
respect the Euro’s ability to turn the buying back on, it will be very damaging
to see a trade below 130.32 as that confirms resumption of the downtrend


It would seem that all the talk about "Asian"
currencies being the problem of international trade imbalances, that has done
nothing to stem the long interest in the Yen. In fact, we suspect that the
market is simply attempting to pull out intervention and that more gains might
be ahead in the Yen. However, the ride for the longs in the Yen might become
extremely violent and that suggests the need for long put coverage against long
futures positions.


Like the Euro, the Swiss is out of favor and under
the liquidation gun. We suspect that the strength in the Asian currencies is
joining the light long interest in the Dollar for a double pressure on the
Swiss. Therefore, we suspect that a new low is ahead and that the Swiss might
once again be poised for a slide to 83.00.


If any currency should be picked on, it should be
the Pound, as its numbers seem to have registered the worst pattern over the
last month and now the chart in the Pound is about to signal a major failure. We
see a March Pound trade below 185 in the coming week.


Apparently the combination of slight Dollar gains,
Yen gains and an overbought status in the Canadian has undermined the bull
setup. In our opinion, it is nothing short of a miracle that the US Dollar has
managed to recover in the wake of an extremely negative trade deficit reading
and mostly disappointing economic numbers! Therefore, maybe the Canadian is set
for a correction back to the up trend channel line at 81.72. Being short the
Canadian might be the right near term position, but the risk and reward is



London Gold Fix $421.70 -$2.95 LME COPPER
STOCKS 44,650 metric tons -1,525 tons COMEX Gold stocks 5.951 ml -16,039 oz
COMEX SILVER stocks 103.2 ml Unchanged


In addition to a slightly negative overnight tilt,
the gold market will have to battle talk of bank selling from the overnight
action. Chinese spot gold prices were weaker overnight and since the gold market
really didn’t get a full throttle benefit from the big Dollar slide on January
12th, it is possible that gold is de-linking somewhat from the Dollar.
Unfortunately for the bull camp in gold, seeing the market de-link from the
Dollar appears to leave a void and that could result in a long liquidation.


The silver market seems to have forged a quasi
double top on the charts and is seeing mostly negative spillover effects from
the gold market. Like gold, we suspect that silver will register a moderately
overbought small spec and fund long position but that report is apparently going
to be delayed due to the coming holiday. While the March silver appears to have
decent support down at $6.62, it would not be surprising to see the March fall
all the way back to the early January consolidation pattern of $6.59 to $6.39.


The platinum market has continued to fall back off
its recent spike high and with many traders assuming higher production in 2005
and only minor demand expansion we are still having trouble rationalizing nearby
platinum prices above the $860 level. In fact, on any return to the $870 level
we suggest that position traders look to get short. We might also add that a
brokerage firm downgraded a key platinum producer (Lonmin_ to a sell, from a
prior hold recommendation, and that would seem to insinuate either lower
platinum price expectations, lower demand or higher cost expectations for a
major platinum producer.


The copper market seems to be vulnerable in the
short term but seeing Shanghai copper stocks decline by 5,064 tons certainly
helps to shore up support under the market. Talk that Chinese import demand
might be mostly level in the near term, combined with the mostly disappointing
action in the world equity markets seems to create a slightly bearish
environment. However, the copper market hasn’t really exhibited anything overtly
negative on the charts since the early January debacle.


The energy complex surprised the trade with a
massive run up on information that seemed to have been present in each of the
last two sessions. In fact, some of the buying was supposedly residual buying
off the fact that some Norwegian production was down for longer than expected
due to poor weather. We must also concede that attacks against Iraqi oil
installations have increased recently and many in the trade are thinking that
the insurgents are set to ramp up attacks on oil facilities in the weeks ahead.


The natural gas market flashed higher in the wake of
surprising gains in the regular energy complex. We were a little disappointed
with the magnitude of the weekly draw, especially since the market has recently
seen triple digit draws. In any regard, we suspect that a number of shorts were
scared from their positions by the upcoming cold and by the much stronger than
expected run up in crude and heating oil prices.