Futures Point To A Higher Open
4/5/2005
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INTEREST RATES
Now that the smoke has cleared from the most
recent Monthly Non farm payroll report, one would think that concern for the
economy would have supported Treasury prices closer to the recent highs.
However, the threat of inflation or simply the adjustment of the relative risk
premium attached to the long end of the market, is seemingly providing light
selling pressure to the whole complex. However, the long end of the Treasury
market has managed to avoid some of the pressure, which in turn fosters more of
the “conundrum” phenomenon.
STOCK INDICES
The stock market continues to track the ebb and
flow of equity prices but a rebound in recently besieged issues also contributed
to the recoil off the lows on Monday. The AIG situation brightened considerably
in the wake of comments from the New York Attorney General that a resolution was
“achievable” in the AIG conflict! However, the threat of trouble at GM and
persistent concern of even higher oil prices, remains a background problem for
the market. While we doubt that the regularly scheduled US economic numbers this
morning will have a major impact on stock prices today, it would seem that the
numbers are likely to propagate more macro economic concern.
DOW
While the Dow managed an impressive recovery bounce yesterday, that bounce might
have come from a one time benefit off AIG developments. While the June Dow has
managed to rise above a critical pivot point at 10,437, there would seem to be
significant overhead resistance off the March 23rd to March 29th consolidation
pattern. In order to regain a down trend channel line and shift the short term
trend back to the upside, the June Dow will have to manage a rise above 10,505.
The big question is, can the market get the high energy price monkey off its
back and is the US recovery momentum strong enough to overcome the drag of high
oil prices. In short, the path of least resistance is down but the market
certainly has the potential to forge a weak 2-3 day corrective bounce.
S&P
As long as the pattern of “higher lows” holds off the March lows, we suspect
that the market will be able to respect critical pivot point support at the
1170.80 level. However, we seriously doubt that the market has managed a key low
and unless energy prices show a major decline, we will be inclined to get short
on a bounce. Historically, the S&P hasn’t forged many critical bottoms off the
type of action seen in this market over the last week! A logical sale point in
the June S&P comes in up at 1183.90.
FOREIGN EXCHANGE
US DOLLAR
Even with the constant refrain of US inflation, the
Dollar has continued to rise. In fact, even in the wake of slightly discouraging
US economic readings, the Dollar has continued to show minor buying interest.
Clearly the recent economic downgrade in the Euro zone has given the Dollar a
little boost but with the Dollar rising toward the February highs, we suspect
that future gains could be more difficult to come by. However, one can’t argue
with more minor gains in the Dollar, especially if the US Fed Chairman, in a mid
day energy conference speech, plays up the inflation concern. In short, the
Dollar wins by default and continues the recent pattern of hard fought gains.
Close-in support is pegged at 84.75 and near term resistance is seen up at
85.12. Those that bought the June Dollar on our suggestion last week at 83.60
should use a profit stop at 84.85 and an objective of 85.15.
EURO
The downward revision of Euro zone growth continues
to echo throughout the currency markets, especially since there really isn’t a
fresh dominating issue to refocus the market onto other developments. In fact,
with the Euro zone moved even further away from the rate hike potential, and the
US Fed Chairman expected to at least hint at inflation in a speech today, we
suspect that the interest rate differential issue will continue to pressure the
Euro toward longer term consolidation support down around 127.62. Those that are
long the June Euro 127.50 puts should lower the objective to 170 and traders
might want to utilize a profit stop of 110 on that position.
YEN
The Yen is showing no sign of a reversal, nor is the
Yen showing too much in the way of an extensively oversold mentality. In other
words, the path of least resistance is pointing down and there would seem to be
little to stop the slide until the September and October consolidation is
retested down below 92.00.Deflecting part of the downside momentum in the Yen
overnight is the fact that the Japanese stock market managed to bounce off the
prospect of more favorable exchange rates for exporters.
SWISS
Like the Yen, the Swiss seems to be thoroughly
entrenched in the downside pulse and with little support seen until the February
low of 82.16, there might be little respite from the selling in the near term.
Apparently the flight to quality tilt is temporarily forgotten and the
unfavorable interest rate differential is dominating the action.
BRITISH POUND
In addition to recent economic undermines, the Pound
might also have to contend with a negative political environment, as the UK
Prime Minister has called for General elections in May. Offsetting part of the
negatives overnight are indications that UK housing prices rose in some sectors
in March. However, the currency is undermined and support is now targeted down
at 186.27.
CANADIAN DOLLAR
The Canadian almost gapped down overnight and that
would seem to leave the path of least resistance pointing down. In fact, we are
not even sure that the June Canadian is going to find that much support at the
late March low of 81.58 and that could result in a liquidation all the way down
to 81.00.
METALS
OVERNIGHT
London Gold Fix $423.70 -2.25 LME COPPER
STOCKS 45,550 metric tons +300 tons COMEX Gold stocks 6.109 ml oz +148,780 oz
COMEX SILVER stocks 102.0 ml Unchanged
GOLD
The gold market did little Monday to diffuse the
idea that prices are headed lower and with the Dollar making another new high
for the move overnight, we suspect that the pressure will remain on prices.
Countervailing part of the selling pressure seen off the IMF gold sale
situation, are suggestions overnight that the US has some reservations on the
plan. However, the whole IMF situation is not a major driving force in the
market place, as the fear of economic slowing and the rise in the Dollar are the
real forces of the current trade.
SILVER
The chart in silver hardly evokes bullish sentiment,
as the market would seem to have significant overhead resistance and has little
in the way of near term close-in support. Like the gold market, silver is
partially fretting the impact of ever soaring oil prices and the potential that
the recovery is slowing. Like gold, we doubt that the silver market is due for a
return to the deflated level seen around the February consolidation lows, but we
can’t rule out a decline back to the March lows of $6.83.
PLATINUM
The chart in the platinum market is vulnerable to
more selling with prices clustering around the bottom of the recent up trend
channel. Surprisingly the talk of Asian demand has been muted for almost two
weeks and with the outlook for the global economy deteriorating on the heels of
perpetually rising energy prices we can understand the slightly negative tilt
toward a quasi physical demand driven market. Near term critical support in the
July platinum comes in today at $855 but a spike down to $851 would not be that
surprising.
COPPER
The copper market has slipped back into the lower
half of the last two months trading range and that implies some minor control by
the bear camp. Overnight the Chinese copper market was higher but we can hardly
get fired up on the long side as long as oil prices are undermining economic
sentiment. We are also not seeing the type of daily information flow from the
LME stocks to discount the sagging macro economic sentiment that is present in
most financial markets.
CRUDE COMPLEX
The EIA continues to document the historic price
of retail gasoline, which would seem to simply fan the speculative flames in the
energy market. The gasoline market apparently continues to be the main driving
force behind the bull market but with the market getting slightly overextended
into the highs yesterday, it is not surprising that crude oil finished $1.60
below the recent high. Supporting prices slightly on Monday but not enough to
insure a higher close, were comments from Venezuela suggesting that it was too
soon to move to raise the production ceiling again.
NATURAL GAS
The natural gas market showed some vulnerability
during the action Monday and like the regular energy complex, we suspect that
the market is extensively overbought and possibly in need of a moderate
correction. While the demand for natural gas is falling off due to seasonal
warming, we doubt that North American agricultural demand is set to taper off
anytime soon and that could reduce the selling interest in the event that prices
fall below the critical pivot point support of $7.60. Trend line support in June
natural gas comes in at $7.399 and that might be a logical downside target for
the coming 4 sessions.