Futures Point To A Higher Open
3/24/2005
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INTEREST RATES
The Treasury market came unglued following the
CPI release yesterday but then managed another impressive recovery bounce. As
mentioned a number of times early this week, we suspect that the spec and fund
short in bonds was simply over wound around the lows yesterday and that could
have prompted the bounce. In fact, we have to think that the spec position in
the bonds might have reached a level moderately above the 100,000 contract
level.
STOCK INDICES
The stock market has managed to initially ignore
the overnight recovery in gasoline prices and for that matter did an extremely
good job of discounting the threat of inflation throughout this week. In
addition to the inflation concern spawned by the Fed, the PPI and the CPI, the
market has managed to temper the preexisting bearish psychology and bounce away
from critical chart support levels. While the bulls have to be concerned about
the sharp recovery in gasoline prices overnight (due to an accident at a US
refinery), it would seem that many stock traders are watching crude oil prices
instead of gasoline prices.
DOW
Surprisingly the Dow held well above consolidation support of 10,410 but at this
hour we aren’t exactly shifting through a mountain of bullish information. In
fact, in order to facilitate more gains, the Dow will need help from the early
numbers. While the Dow might be poised for a 2-3 day bounce, the risk of being
long might outweigh the potential rewards. Just because the extreme pressure
from oil prices has been tempered slightly, doesn’t mean that the outlook for
the economy has actually improved and therefore, unless one can come away from
the initial claims and durable goods reports this morning with a clearly
optimistic view toward the economy, we wouldn’t want to chase the market off the
recent lows. In fact, on a new high in unleaded prices and a disjointed set of
economic readings, we suggest that aggressive players might look to get short
the Dow.
S&P
While the June S&P did manage to forge a classic range down reversal move, with
the close back above the 1174.40 pivot yesterday, that close was barely above
the pivot and we are also not sure that the threat of ultra damaging oil prices
is in fact past. Therefore, traders should look directly at the May unleaded
price action today for a hint at the near term direction of the S&P. If you want
to be long, we would strongly suggest limiting exposure by purchasing at the
money April calls and in the event that you do get long you should be prepared
to bank profits in the event that the market manages a minor 2-3 day bounce.
Some resistance will be seen at 1180.00 but the market might be able to short
cover and rise to 1182.70, without really altering the existing down trend
pattern. Pushed into the market we would wait for a rally to get short!
FOREIGN EXCHANGE
US DOLLAR
While energy prices might be recovering, it would
not seem like the Dollar is going to be adversely affected by that action. In
fact, the market would seem to be accepting of the idea that rising US interest
rates will continue to pull in investment, regardless of what the US economic
readings are this morning. Expectations call for a slight rise in durable goods
and a nondescript change in the claims report, but we doubt that the market is
going to react sharply to the readings unless the subsequent headlines trumpet
the US growth argument. With the US Dollar managing to climb above the 100 day
moving average and the Dollar apparently headed toward a gap up at 84.31 to
84.38, we have to think that the short term trend remains up. Countervailing
some of the prevailing strength in the Dollar is talk overnight that the BOE
might need to raise interest rates slightly and that gives the US rate of return
edge a little competition. However, it would seem like the market wants to
embrace the idea of even higher US rates but it will take good numbers this
morning to directly rekindle the upswing in the Dollar. Critical support comes
in at 83.82.
EURO
While the Euro would seem to have found some
temporary support around 130.00 and the recovery in the energy complex might
serve to undermine the Dollar, we are not convinced that the Euro is set to
recoil away from close-in support. In fact, with Italy reporting a decline in
4th quarter GDP of 0.4% there is a bit of an undermine but the macro economic
impact on prices is diffused by the +0.3% rise in German inflation numbers that
were also released overnight. Other than a minor short covering bounce, we are
not convinced that the Euro has finished the downside pulse that has been firmly
entrenched since the middle of March.
YEN
The Yen remains under pressure this morning and with
the BOJ suggesting that the need to fight deflation is still a necessity and
energy prices back on the rise again, it is not surprising that the Yen remains
under pressure. We also think that the concern of rising Chinese interest rates
is providing the Yen with some additional selling pressure, as a slower Chinese
economy could mean less Japanese export activity ahead. Therefore, the path of
least resistance is down, with the Yen possibly headed down to 94.00.
SWISS
A temporary pause around the 84.00 level could mean
tighter ranges in the Swiss today. However, a minor bounce in the Swiss should
be considered a selling opportunity. Aggressive traders could look to sell the
Swiss on a bounce back to the 84.19 level, using a stop up at 84.39.
BRITISH POUND
The BOE is suggesting that they might need to raise
rates slightly, even though the same comments were accompanied by concerns about
slowing in some UK economic sectors. In other words, the BOE is in the same
posture as the US Fed, in that they look to battle inflation even if the
underlying economic track is suspect. Therefore, we think that the Pound is
eventually going to fall down to 185.00 but in the near term we can’t rule out a
temporary bounce up to 186.66.
CANADIAN DOLLAR
The Canadian looks to end the week right on the 100
day moving average and generally in a vulnerable status. We think the short side
is fraught with risk but that the path of least resistance in the Canadian is
pointing downward. Near term downside targeting for those that are willing to be
short, is 81.54 but we think the risk outweighs the reward of being short.
METALS
OVERNIGHT
London Gold Fix $424.90 -$2.35 LME COPPER
STOCKS 45,125 metric tons -1,575 tons COMEX Gold stocks 5.932 ml oz +2,731 oz
COMEX SILVER stocks 102.4 ml -1,002 oz
GOLD
While the gains in the Dollar this morning are not
that significant it would seem that the bias remains up in the Dollar. However,
in order to solidify that trend it might be necessary for the US to post a
positive durable goods reading this morning. However, at least initially the
market is partially undermined by overnight reports of Bank selling overnight in
Asia.
SILVER
With the gold market still under a liquidation watch
and the Dollar not showing much in the way of direction this morning, we have to
think that the bears will maintain an edge in silver. In fact, we see little in
the way of close-in support in the Silver until the $6.75 level but as we
suggested yesterday a decline down to the vicinity of $6.50 might represent an
opportunity to buy in at a deflated price. However, the silver market might also
have to contend with the impression that the spec and fund long remains rather
overdone, as the upcoming COT report is going to miss about 7-9 cents of the
slide due to the mark-off date.
PLATINUM
The platinum market appears to have gapped lower
this morning and that would seem to leave the path of least resistance pointing
downward. In fact, we wouldn’t expect platinum to find solid support until the
$847.6 level or until the copper and gold markets have shown the ability to
resume a pattern of daily gains. We do think that a large portion of the funds
have exited platinum and that could slow the rate of declines.
COPPER
While the copper market came close to violating a
critical up trend channel line yesterday, it would seem to have a better chance
of avoiding more downside than the rest of the metals. In fact, with LME copper
stocks falling by an impressive 1,575 tons overnight, the market is at least
reminded of the existing tightness theme, even if that renewed awareness fails
to turn the bearish tilt in the market into the opening this morning. Both
London and Shanghai copper prices were soft overnight, which would seem to
suggest that Chinese buyers are exactly jumping in because of the lower price
structure.
CRUDE COMPLEX
The energy complex certainly followed through in
the liquidation effort that began on Tuesday, at least during the normal pit
session on Wednesday. Even more surprising is the fact that energy prices almost
completely ignored some potentially supportive product stock information at
least until the afternoon reports of a blast at a Texas refinery. In fact, the
unleaded market in the afternoon session came rebounding back and almost
challenged the contract highs forged late last week.
NATURAL GAS
The natural gas market came under some liquidation
pressure in sympathy with the sharp decline in the crude oil market yesterday
morning. However, the natural gas market also managed to recoil away from the
lows and leave the impression that the $7.20 level was in fact a decent support
zone on the charts. The expectations for the weekly storage data call for
another draw of 70 to 85 bcf but considering the below normal temps we suspect
that draws will continue to be mostly supportive.