Futures Point To A Higher Open
4/6/2005
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INTEREST RATES
The Treasury market continues to exhibit a
slightly undermined posture and considering the bearish fundamental news on
Tuesday (decent scheduled reports and sharply lower oil prices) one might be a
little impressed with the markets ability to respect support and bounce from the
recent lows. While Greenspan hinted at the oil price drag on US growth and that
probably gave the bull camp a little lift, it would still seem like the
inflation threat was present in the Chairman’s outlook yesterday. Therefore, the
Treasury market continues to countervailing forces of slow growth and inflation
and that is fostering a range trade pattern in Treasuries.
STOCK INDICES
The inverse correlation between oil prices and
equity prices was clearly evident yesterday and should be again this morning. In
fact, with slightly lower early oil price action and the prospect of a favorable
beginning to the earnings cycle, we suspect that the bulls will control.
However, in order to really turn the buying interest up in the stock market,
nearby crude oil prices will have to see a decline below a critical pivot point
of $56.00 in the June crude contract.
DOW
Technically the June Dow actually managed to gap up overnight and that would
seem to suggest that the current upward track has some ability to extend. With
the economic report slate empty today and oil prices showing early weakness, it
is possible that the Dow extends the rally for another session. Near term upside
targeting in the June Dow comes in at 10,520 and near term support is pegged at
10,480. Certainly the GM downgrade undermines sentiment but as long as lower oil
prices are present, we suspect that the buyers will be able to control. We still
get the sense that the current upside action is a rally within a bear market and
with today technically the 3rd day up, we will begin to look more intently for
signs of a top. On the other hand, the trade should not ignore the weekly oil
inventory report this morning, as that could increase the selling pressure on
oil and in turn whip up the buying interest in the Dow.
S&P
While this is the 3rd day up, the June S&P has little resistance on the charts
until the 1193.50 level. One might also suggest that the action on April 4th was
indeed a classical reversal, after a new low for the move, but we are not sure
that the market has turned the bigger picture down trend totally around. In the
near term, we would expect prices to remain firm until there is a June crude oil
trade back above $57.20. In order to turn intermediate trend signals up, the
June S&P will have to manage a trade and close above 1190.30 today. Let the bull
track run, but longs might consider tightening profit stops on longs later in
the session today!
FOREIGN EXCHANGE
US DOLLAR
The action in the Dollar is really fickle, as a
decline in oil prices has seemingly derailed bullish sentiment in the Dollar,
even though lower oil prices would seem to give the US economy a better chance
of regaining positive momentum. The Dollar must be partly overbought
technically, because the presence of slack German economic numbers overnight has
failed to support the Dollar. However, with Greenspan acknowledging a slowing
impact off rising oil prices in the US, the trade naturally downplayed the
inflation potential and in the process decided to take profits on a slightly
overbought US Dollar condition. In the past, the Dollar was actually pressured
as a result of ultra high oil prices, as the trade thought that the US economy
was the most reliant on oil, but in the near term, the high oil/lower Dollar
pattern seems to have been broken. In fact, in the event of even lower oil
prices, we suspect that the Dollar will fall even though one might expect the US
economy to benefit from lower oil prices. In short, the market is in a negative
posture toward the Dollar and that will continue until inflation becomes a
headline development again. Near term support in the June Dollar is pegged at
84.27.
EURO
The Euro is getting mostly technical short covering
interest as the overnight numbers have once again highlighted European economic
slowing. Germany showed a sharp decline in February manufacturing orders and
specifically showed a sharp decline in foreign manufacturing orders and that
would seem to suggest that the effect of the high Euro is in fact dragging on
the German economy. However, the World Bank suggested overnight that the
recovery in the global economy may have come to an end, and that the a lack of
confidence in the Dollar in a coming global slowdown, might increase the chances
of a Dollar debacle and that should rekindle some longer term buying interest in
the Euro. Therefore, the Euro might have a fresh buying impetus but we doubt
that the market is set to push the Euro above critical resistance of 129.36,
without some key headline type development.
YEN
After a significant overnight attempt to bounce, the
Yen has settled back down in the range and appears to be set to retest the
recent lows. If a sudden decline in oil prices fails to help the Yen, we are
inclined to leave our downside targeting of 91.70 in place for the coming
sessions. The World Bank lowered Japanese growth to a mere +0.8% in 2005 and
that is hardly the type of growth that can be expected to support the Yen.
Therefore, look for a resumption of the downside wave in the coming sessions.
The Japanese stock market is trumpeting the recent strength in the Dollar, as a
sign of global recovery and that in turn solidifies the downtrend in the Yen.
SWISS
A minor technical bounce is expected over the coming
sessions with a near term upside objective of 83.77 but we suspect that the
overall down trend pattern will remain in effect. A key downtrend channel
resistance line comes in at 83.68 but fresh sellers might wait for a rise to the
83.75 level to get short.
BRITISH POUND
A minor upside breakout was basically rejected
overnight but we can’t rule out more attempts to rally. We suspect that the news
of May elections in the UK is a minor bear item for the Pound, but right now the
Pound really lacks a definitive theme. In fact, we expect the June Pound to
waffle in a range bound by 186.69 and 187.80 basis the June contract.
CANADIAN DOLLAR
While the June contract might have managed a higher
high overnight, the market still seems to have a downward bias. Critical trend
line resistance comes in today at 82.69 and the bottom of the consolidation
comes in at 81.90. We suspect that the trend is down but that declines will be
narrow and measured.
METALS
OVERNIGHT
London Gold Fix $426.60 +3.00 LME COPPER
STOCKS 46,175 metric tons +625 tons COMEX Gold stocks 6.109 ml oz Unchanged
COMEX SILVER stocks 103.2 ml +1.13 ml oz
GOLD
As opposed to several days ago a number of bearish
factors have been reversed and that has given the bulls a little incentive. In
addition to talk that the US is set to voice opposition against the IMF gold
sales plan (for debt relief), it is clear that the Dollar ran out of upside fuel
yesterday and now appears to be in a weakened posture. Traders need to note the
cause of the ebb and flow in the gold market over the last several sessions, as
that action would seem to confirm to us, that optimism toward the economy is a
necessary component of the gold bull case.
SILVER
Like gold, silver is certainly seeing a direct lift
off the improved macro economic view that comes compliments of lower oil prices.
However, because the silver market has recently shown a little more positive
volatility than gold, we are not surprised that silver is rising toward near
term critical pivot point resistance in the early going today. In order to turn
short term technical indicators up, the May silver will have to manage a rise
above $7.147.
PLATINUM
A strong hook reversal up in platinum clearly
highlights the markets attentiveness to positive macro economic developments. In
other words, lower oil and higher equity prices apparently translates into
buying interest in platinum. With oil slightly lower again this morning and
equity prices hopeful of support from the earnings cycle, it might be possible
for July platinum to manage a rise toward the top of the last month’s
consolidation around the $870 level.
COPPER
The copper market certainly corrected a slightly
overbought condition with the slide off the late March high and now the market
is now seeing at least a temporary improvement in the macro economic view.
Certainly lower oil prices are part of the current buying incentive, but we are
concerned about the recent LME daily stock changes as they suggest slightly less
intense tightness at least in European demand areas. Dow Jones carried another
pro-Chinese demand story overnight and it is clear that Chinese demand hopes and
ongoing tight supply conditions at the Shanghai exchange are still providing the
foundation for a continuation of the bull market.
CRUDE COMPLEX
The energy complex saw some of the bullish
sentiment extracted from the equation yesterday, as a result of calming dialogue
from the US Federal Reserve Chairman. Apparently the Chairman suggested that
ultra high oil prices are already working to reduce demand but urged Congress to
avoid unnecessary involvement in the oil industry. Apparently the Chairman is
setting the groundwork for a future consulting job with the oil industry, as
those reaping huge profits off the high price structure, want to see current
conditions hold for as long as possible and the Chairman’s words yesterday would
seem to justify discourage movement on a new energy bill.
NATURAL GAS
One has to be impressed with the natural gas market
action Tuesday, in the face of the sharp slide in crude oil prices. In fact,
three weeks ago the slide in crude would have buried natural gas in a
liquidation wave. However, we suspect that cash demand and industrial demand is
underpinning natural gas and therefore a decline to $7.50 might be in the cards,
but we also suspect that value hunters will be pulled in on price weakness.