Futures Point To A Higher Open
4/20/2005
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INTEREST RATES
The Treasury market is truly bullishly biased as
the market managed to spin the hot headline PPI reading yesterday into a benign
inflation reading. Certainly seeing such significant declines in housing starts
and a sharp recovery in oil prices would seem to increase the resolve of the
bull camp. In fact, given all the action this week, we have to suggest that the
equity market gains seem to be slightly out of character for current conditions.
STOCK INDICES
The stock market continues to defy economic
gravity and is being helped by a string of better than expected corporate
earnings reports and also by a partial re-evaluation of what some claim was an
overly negative economic outlook. We also suspect that the market was
extensively oversold and as we suggested earlier this week, the market was due a
2-3 day short covering bounce. Today would be the 3rd day of quasi short
covering, and with oil prices rising $3.00 per barrel off the Monday low and US
housing starts falling off sharply, we are having difficulty buying into the
bull case.
DOW
The 3 day bounce apparently continues this morning, despite the fact that the
Wall Street Journal front page is trumpeting the $1.1 billion Dollar loss at GM.
However, now that the technical condition has been corrected, we suspect that
renewed selling will surface, especially if the heavy flow of critical earnings
reports this morning fails to facilitate consistent follow through buying. We
doubt that the CPI report this morning will have that much of an impact on the
Dow, but we do think that the weekly oil inventory report could be a critical
issue for large cap stocks. In short, we would suggest that traders consider
buying some June Dow 9900 puts for 1100 (which would require a slight rally)
with an objective of 3000. Risk the position to 500.
S&P
While the early earnings info seems to support the bull case into the opening,
we can’t get that optimistic toward the future. In fact, we suspect that players
should be ready to short this market, especially in the event that June crude
oil prices manage to rise back above $55.00 in the action today. In the early
going, favorable earnings reports seem to be garnering the headlines but we have
to wonder if the market will maintain that focus over the ongoing concerns for
the auto and housing sectors. In a positive note, an impressive economic growth
reading from China overnight might serve to facilitate recent optimism, but we
would be surprised to see the June S&P manage a rise above a critical pivot
point of 1160.60. Furthermore, the trend in the June S&P doesn’t turn up, until
the market regains 1183.35, but that trend pivot point declines to 1180.10 on
Friday.
FOREIGN EXCHANGE
US DOLLAR
Apparently Dollar players aren’t seeing the same
bullish factors that equity players are seeing. In fact, the Dollar took what
appeared to be patently bullish PPI readings and spun them into a moderately
bearish tilt. Yesterday the US equity market almost totally ignored a $2.00
rally in crude oil prices and an 18% decline in US housing starts, but
apparently the Dollar was painfully aware of the fundamental news flow, as it
forged a lower low for the move. The Dollar remains under pressure this morning
but has apparently managed to recoil (at least initially) from a critical 50 day
moving average. With the US not even able to flash inflation signals off a hot
PPI, we have to think that the path of least resistance is pointing down, and
that a decline below the critical consolidation low of 83.50 is in the cards. In
fact, with the stronger than expected Chinese growth story, we suspect that the
Dollar will come under even more pressure, as players speculate on some type of
G7 effort to balance global growth. Under sharply rising oil prices we could see
the Dollar touch 83.00 in the coming week.
EURO
The June euro comes right up to a critical 50 day
moving average number today at 130.96 and with Italian Industrial orders rising
by a surprising 0.7% there would seem to be a fundamental reasoning to propagate
the recent gains. While anxiety toward the US economy has been partially
mitigated this week, we suspect that concern will return as oil prices rise.
Therefore, the path of least resistance is pointing up and we suspect that the
June Euro will rise to the middle of the last 6 months consolidation zone around
132.10. The Euro isn’t in favor but it is benefiting from Dollar weakness and is
seeing spill over buying from the Pound.
YEN
So far the Yen hasn’t shown a definitive sign of a
near term top. However, in the wake of news that China’s economy continued to
grow stronger than expected, we suspect that the Yen will be able to hold up
around the recent highs. In fact, we suspect that the yen is now building
support around the 94.00 level and that might serve to dissipate the down trend
pattern that has been generally in control since the December 2004 highs. In
short, we see the chance for more gains, in what is still considered a bear
market.
SWISS
The Swiss comes into the action this morning right
on the 50 day moving average and possibly poised to claw out more hard fought
gains. However, we don’t get the sense that the Swiss is set to benefit from
intense flight to quality buying, unless US refinery problems send US oil prices
rocketing higher and US numbers really turn off soft. At 84.90 the June Swiss
unfortunately sits right in the middle of a rather wide consolidation zone.
BRITISH POUND
While the Pound is short term overbought, we suspect
that more gains are ahead. In fact, on a minor correction to 190.60 we would
become a buyer of the June Pound, looking for an eventual return to the March
highs up around 192.27. In short, the Pound looks to have the best risk and
reward combination against the US Dollar.
CANADIAN DOLLAR
The US Dollar has weakened to the point that even
the Canadian is seeing support. While the initial rise in the Canadian seems to
be mostly short covering, a rise back above 81.03 could actually begin to foster
fresh buying and possible a change in trend in the Canadian.
METALS
OVERNIGHT
London Gold Fix $432.25 +$5.40 LME COPPER
STOCKS 52,850 metric tons +1,025 tons COMEX Gold stocks 5.934 ml oz Unchanged
COMEX SILVER stocks 103.5 ml Unchanged
GOLD
Following the sharp upward adjustment in gold
yesterday, the market seems to have a slightly diversified focus. In addition to
the lower Dollar we also suspect that an improved macro economic outlook
(especially toward China) provided support to gold. We also have to think that
some support was derived off the hot PPI reading, but it was clear that broad
based commodity fund buying was at least partially responsible for the magnitude
of the rise in gold prices.
SILVER
The silver market certainly appeared to have a
little more intense fund interest than the gold market on Tuesday. However, in
the end, all the metals posted impressive gains that seemed to shift sentiment
into the bull camp. However, unlike the gold market, the silver market failed to
leave the last month’s consolidation.
PLATINUM
Improved macro economic views apparently combined
with ideas of stronger Chinese economic activity to push platinum out of a month
long consolidation pattern to the upside. With supply relatively unchanged and
mostly tight, all that was needed to shift platinum prices into positive motion
was a global economic upgrade. While we have to leave the bias pointing up, we
also suspect that the risk and reward for fresh longs, is rather unattractive
with platinum prices approaching historically extreme pricing.
COPPER
Two items in the headlines this morning serve to
shift the copper market into positive motion. With the Press indicating that the
Chinese economy grew faster than was expected in the first quarter and Shanghai
traders reporting spot tightness, we suspect that copper prices will continue to
rise back toward the 150.00 level in the July contract. In fact, Shanghai copper
prices were higher despite overnight reports that Chinese 1st quarter copper
production rose by 18%.
CRUDE COMPLEX
The energy complex came bounding back in a move
that would seem to give control back to the bull camp. While the majority of the
gains appeared to be sparked by a series of US refinery concerns, we also think
that an improvement in the macro economic look contributed to the rise. While a
temporary rise in equity prices is not proof that the economy is holding
together, it is certainly easier for the bull camp to play up the idea of summer
gasoline shortages, in the face of some optimism, rather than the despair
present late last week and early Monday morning.
NATURAL GAS
The natural gas market quickly returned to the top
of the recent consolidation. The June contract makes a critical upside breakout
with a mere probe above $7.175, but a more significant breakout would take place
with a rise above $7.22. While it might be premature to talk about cooling
degree days, it is possible that the mild/warm pattern is already carrying into
a hot pattern and that might spark increased utility buying.