Futures Point To A Higher Open
3/28/2005
INTEREST RATES
The Treasury market comes into the new week after
weathering several inflation threats last week, but with the market bouncing
significantly off the lows last week, it is clear that part of the oversold
condition was balanced. However, with the COT report showing the net spec and
fund short to be 97,000 contracts and the market coming into the action this
morning within striking distance of where the COT report was measured, we have
to think that the bull camp retains a technical edge. However, the fundamental
track continues to favor the bear camp and with the monthly non farm payroll
report due out at the end of the week, it might difficult for the market to
carry out a sustained short covering extension on the upside.
STOCK INDICES
We suspect that the SunGard deal this morning
gives the bull camp a rally theme, we are not sure that the regularly scheduled
economic readings are going to provide any additional support. On the other
hand, the market is generally upbeat toward the week ending monthly payroll
report and oil prices this morning are softer which would seem to favor the bull
camp. In other words, the market is effectively reversing the negative sentiment
that was in place into the close last week, but we don’t get the sense that the
market is totally willing to get beyond the negative sentiment being thrown off
by the GM situation.
DOW
While the charts don’t look that impressive, the June Dow has managed to build a
thin consolidation pattern around the key pivot point of 10,470. It should also
be noted that the long fund position in the COT report showed a 6,000 contract
paring down of the long position and that might alleviate some of the potential
selling pressure early this week. However, in order to display positive
progression, the June Dow will need to manage a rise and close back above
10,510, which was the high last Thursday. The big picture trend remains down
with the 100 day moving average coming in well above the current market at
10,637. We see a slight upward potential but we are not sure that the market can
garner enough volume to make the upside stick.
S&P
The S&P comes into the action this week with a split opinion in the small spec
and fund positioning. The funds remain moderately short and the small specs
remain moderately net long. However, the June S&P has managed a series of higher
lows and would seem to have a minor upward bias this morning. On the other hand,
as mentioned before, the S&P needs help from lower energy prices in order to
rise above a critical pivot point of 1180. In fact, to turn the trend up, the
June S&P needs to climb above a steep down trend channel line at 1191.85 and
that would seem to be a very difficult task. In short, the market looks to
attempt a minor bounce but there wouldn’t appear to be much volume behind the
coming move.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to get the benefit of the doubt
on the economic differential and with the Fed offering up persistent inflation
concerns it is likely that the economic differential remains supportive to the
Dollar. While we are still not sure what altered the markets view toward the
Dollar so conclusively, it is clear that the trend in the Dollar is indeed
pointing upward. While the economic numbers early this week would not seem to
facilitate even more gains in the Dollar, the market is looking ahead to the
week ending monthly US payroll report and is expecting a moderately supportive
225,000 gain in jobs. Therefore, the fundamental track would still generally
seem to favor the bull camp in the Dollar. The June Dollar Index seems to have a
gap up at 83.87 to 84.38 and that could be an initial target this week. On the
other hand, it would not be a positive for the Dollar to fail to close above
84.00 today. Traders might expect a slight setback off the early in the week US
economic readings, but that dip might be a buy for short term Dollar players.
EURO
While the Euro has managed to reject some of the
massive overnight losses on the charts, the trend would seem to be entrenched in
the downside motion. The Press is sold on the idea that European growth is set
to lag behind that of the US and that seems to be the dominating theme of the
sellers in the Euro. In fact, with the exception of the pivot point at 128.75,
we really don’t see much in the way of solid chart support in the June Euro
until the 127.70 level. With a number of markets closed in Europe today, the
magnitude of early downside action might be restrained. We suggest that
aggressive traders look to be sellers of the June Euro after a slight post
opening bounce to 129.80.
YEN
A big range down in the Yen would seem to open up
long term technical selling as the Yen managed the lowest trade since mid
October. In fact, we have to think that the BOJ is cheering the decline and is
only just becoming concerned about the rate of decline. The June Yen would seem
to have little in the way of chart support until the 93.62 level and perhaps not
until the top of the consolidation at 93.30. With the Jobless rate in Japan due
out early Tuesday morning, we suspect that the market will not see much
fundamental conflict in the sharp declines in the Yen.
SWISS
Like the Euro, we see little in the way of solid
support in the Swiss until the pivot point at 83.15 but we also can’t rule out a
slide all the way down to 82.29, in the event that the US payrolls on Friday are
at or above expectations. Right now, there is little flight to quality interest
and little resolve to stop the slide in the Swiss.
BRITISH POUND
We suspect that the Pound will find support this
week but that prices might be set to slide to 185.00 before buyers step up in
any meaningful amount. From the overnight thrust downward the market is short
term oversold and possibly poised to retest the February lows. In the near term,
traders should wait for a bounce to 186.02 to get short this market.
CANADIAN DOLLAR
The Canadian has slid below the 100 day moving
average and has repeatedly made lower lows over the last 8 sessions and that
would seem to leave the path of least resistance pointing downward. However, the
momentum on the downside is minimal and solid support is seen down at 81.75.
Therefore, the trend might be down but the risk and reward of being short isn’t
that attractive.
METALS
OVERNIGHT
London Gold Fix $424.90 n.a. LME COPPER
STOCKS 45,125 metric tons -1,575 tons COMEX Gold stocks 5.932 ml oz -225 oz
COMEX SILVER stocks 102.4 ml Unchanged
GOLD
While the holiday continues to influence the gold
market, it would seem like Chinese spot gold was lower overnight and that the
Dollar looks to open the new week right at or into new highs for the move.
Therefore, we have to think that the bear camp will retain an edge in the near
term. While the small spec and fund long in the COT report is probably
overstated due to the slide following the mark off date, we suspect that the
market remains vulnerable to more stop loss selling.
SILVER
The silver market showed another downside failure in
the early action this morning but did manage to reject part of those losses in
the last hour or trade. However, the net spec long in silver was still
overbought at 65,000 contracts in the last COT report but certainly that reading
was overstated due to the 13 cent decline that took place after the COT report
was measured. In other words, the silver market is still vulnerable to more
liquidation and the fundamental setup would seem to favor the bear camp.
PLATINUM
The platinum market appears to have forged a massive
reversal this morning after temporarily falling below the prior days low.
However, we are not sure that the platinum market can buck the trend in place in
the rest of the precious metals markets, unless the sharp decline in Shanghai
copper stocks last Friday morning, is a sign that Chinese demand for platinum is
also going to remain strong. In the short term, it would seem like the $855
level is going to be decent support and that could mean that platinum trades in
an $854 to $875 range.
COPPER
A massive decline in Shanghai copper stocks last
Friday morning of 15,409 tons leaves the Shanghai copper stocks at a very
concerning level of only 21,463 tons. Surprisingly the US copper market has been
unable to manage a rise back above a critical pivot point at 146.70 despite the
fact that Chinese copper futures finished higher. With the new low recorded in
Shanghai exchange stocks, all that is missing from a resurgent bull case is a
better economic outlook.
CRUDE COMPLEX
While the refinery fire last week certainly
countered the liquidation wave that gripped the market for most of last week, we
are not sure that the liquidation effort has run its course. Certainly the
refinery problem rekindles the awareness of the precarious condition of the US
product market. However, because the US is entering the slack demand window,
ahead of the summer driving season, we suspect that the product issue will carry
less weight.
NATURAL GAS
The latest 6 to 10 day forecast for March 30th to
April 3rd is calling for a significant moderation in temperatures in the
Northeast and Midwest and that could begin to foster some long liquidation in
the small spec long position that was pretty overdone at 45,000 contracts last
week. The EIA reported a natural gas storage draw of 89 bcf last week, which was
at the lower end of expectations and therefore was considered slightly bearish.
The annual surplus now stands at 249 bcf vs 275 bcf surplus the previous week
and that is a slight countervailing force to the small draw and the upcoming
warm weather.