Futures Point To A Higher Open
3/30/2005
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INTEREST RATES
The Treasury market was justified in the gains
posted on Tuesday considering the weak Consumer Confidence readings and the
weakness in US equity prices. However, while some longs might fear the GDP
reading this morning, that report should be considered old news. Therefore,
unless the GDP report is revised aggressively upward, we doubt that the market
will have a big reaction to the report.
STOCK INDICES
While many Wall Street analysts will suggest that
the recent decline has been orderly, it would seem like investor attitudes are
becoming a little more pessimistic. In fact, the markets decision to downplay
some buyout and merger activity yesterday seemed to combine with the
disappointing US Consumer Confidence readings on Tuesday to shift sentiment
squarely into the bear camp. In conclusion, the short covering action of the
last week now seems to have set the market up for another downward pulse in
prices.
DOW
The idea of even higher interest rates, slack economic activity, high oil costs
and ongoing accounting investigations should be enough to push more investors to
the sidelines and in turn make bargain hunting buying less likely. In fact, we
suspect that the June Dow is indeed headed back down to the January lows and
that those lows won’t even hold without the Friday morning payroll report
providing something positive. Therefore, near term support and a near term
target is seen at 10,409 and to turn the trend back up, the Dow might have to
manage a smart rise back above 10,510. About the most positive thing that can be
said about the market, is that few investors are willing aggressively attack
this market from the short side.
S&P
With the new low for the move probe yesterday and the failure to hold the early
rally Tuesday, it is clear that the bear camp has control. In addition to the
slack economic readings, the S&P is also being dragged lower by corporate
in-fighting, regulatory developments and persistent disappointment toward the
near term economic outlook. As we have mentioned a number of times in the past,
the S&P doesn’t seem to form solid bottoms off a pattern of gradual declines. In
other words, the market might be poised for an aggressive downward thrust ahead
and hopefully that will cleanse the market technically and inspire a reversal.
In the mean time, we suspect that the market is headed toward the next support
level on the charts of 1164.50. The failure to hold consistently above the
January low of 1170 really undermines the market and creates long term
liquidation concerns.
FOREIGN EXCHANGE
US DOLLAR
While the Dollar continues to show signs of
extending the downside probe that was in motion on Tuesday, the market did seem
to find some support from the 84.00 even level. The overnight news is mixed for
the Dollar as Spain produced a slightly hot inflation reading overnight, while
Japanese economic numbers were soft. Therefore, the Dollar is weakened against
the Euro and the Swiss and partly supported against the Yen and Pacific Rim
currencies. However, many see the US GDP reading this morning as a stop gap
reading that will remind the market of the potential for even greater yield
advantages in the US. Unfortunately, there is also a story in the Wall Street
Journal this morning, that calls for the US Fed to go slowing on future interest
rate hikes, as that could result in a panic style liquidation of US Treasuries.
In other words, both inflation and Treasury market talk would seem to discourage
long interest in the Dollar. In short, the market is leaning toward the downside
but the GDP should discourage an aggressive slide below the critical pivot point
of 84.00.
EURO
Like the Dollar, the Euro has managed to return to a
critical pivot point on the charts and could over the coming two sessions,
attempt to forge more gains. In fact, we would not be surprised to see the Euro
attempt a rise back to 131.21 in the coming four sessions. As mentioned before,
the Spanish CPI reading came in above expectations and that could actually
temper the idea that US interest rate levels are going to run far ahead of Euro
zone rates. Italian producer prices were also up modestly and that means that
inflation expectations are at least alive in the Euro zone. Therefore, the bulls
seem to control and the market might need to see an above expectation US payroll
reading to effectively shut off the near term upward tilt in the Euro. However,
to trade against the recent downtrend, into a very big report on Friday, might
be best accomplished with the purchase of at the money April call options (130
calls). At the money calls have only 9 days left to expiration but seem to offer
a risk controlled way to fade the downtrend pattern in place for most of March.
YEN
The Japanese produced yet another weak economic
reading in their Industrial output reading and that combined with some
disjointed views toward the Chinese economy seems to leave the Yen in a weakened
posture. The Yen wasn’t exactly prepared to lead the way against the Dollar over
the last month and the most positive thing that can be said of the currency, is
that it might be approaching a significantly oversold condition with additional
losses. We suspect that more losses are ahead but the risk of being wrong is too
great to begin searching for a bottom.
SWISS
While the Swiss isn’t exactly catching a flight to
quality wave, there is a growing negative attitude toward the US economy, and
the Euro is coming back into favor. Therefore, we have to think that the path of
least resistance is up in the Swiss, with the next target or resistance seen up
at 84.09. Like the Euro the best way to play a counter trend bounce, into
critical US news, might be to purchase cheap near to expiration calls.
BRITISH POUND
As suggested yesterday the Pound and Canadian appear
to have the best fundamental track against the Dollar and now the Pound might
also be catching some additional technical buying impetus. In fact, with the
rise above 187.50 overnight, one might assume that the Pound is poised for a
rise back to 188.42. In order to derail the rise in the Pound today, the US GDP
will have to be revised upward again.
CANADIAN DOLLAR
While the Canadian might be a little overdone from a
short term perspective, we continue to think that the trend has turned up. It
would seem like the market has run into initial resistance at the 83.00 level
but we continue to think that the June Canadian will attempt to return to the
March consolidation highs at some point in the coming 5 sessions.
METALS
OVERNIGHT
London Gold Fix $426.50 -.50 LME COPPER
STOCKS 44,700 metric tons +100 tons COMEX Gold stocks 5.929 ml oz Unchanged
COMEX SILVER stocks 101.4 ml -992 oz
GOLD
The bull camp in gold has to be very disappointed
with the action in gold on Tuesday. In addition to the gold markets failure to
post gains in the wake of a second day of Dollar weakness, the market also
lagged behind or diverged with silver, platinum and copper. In other words, the
action in the gold market doesn’t give the impression that a wave of longs is
prepared to rush back into the market on the long side.
SILVER
While the silver market showed better performance
than gold, we would stop short of calling the silver action impressive. In fact,
the May silver market has managed to climb nearly 20 cents off the recent low,
but has been unable to climb above quasi consolidation resistance of $7.02.
However, it was clear that the silver market was in favor and might be tracking
the action in copper and platinum instead of gold.
PLATINUM
Certainly the platinum market managed an impressive
bounce off the recent lows, but now it would seem like the market has run into
significant resistance up at $864.5. With copper and equity prices showing some
weakness, we have to think that the near term path of least resistance is
pointing down in platinum. Near term pivot point support in July platinum comes
in at $854 but $850 support looks to be capable of discouraging a more
aggressive selling wave.
COPPER
While a large brokerage firm has raised it price
projection for copper into mid year, copper prices overnight were weak. In fact,
Chinese copper prices were lower, with some traders citing concern for the
Chinese economy. Countervailing the slightly negative macro economic tilt
overnight, is an ongoing concern about tight Asian supplies.
CRUDE COMPLEX
We remain convinced that this market is poised
for lower action. With the weekly inventory reports due out this morning and the
trade generally expecting a modest build in crude oil stocks, the bear camp
should have an edge. Adding to the bearish tilt is the market’s reaction to
fundamental news on Tuesday.
NATURAL GAS
The natural gas market posted an impressive reversal
and upward thrust on Tuesday, especially in the wake of inconclusive action in
crude oil. Therefore, natural gas and crude oil prices appear to be de-linked in
the near term, which may be a big positive for natural gas. Given that outside
forces appeared to be poised to pressure natural gas prices, at the same time
that near term temperatures were mostly bearish, the rally in natural gas
Tuesday seems to confirm a more bullish set up than many would have expected.