Futures Point To A Lower Open
7/14/2004
INTEREST RATES
Over the past two months we have expected
Treasury prices to rally within a bigger picture down trend. We have constantly
cited the fact that the bonds generally remained net short, thus creating the
potential for short covering, but now we have to think that the short position
is largely mitigated, with the price action since the last COT report mark off.
With the Treasury market consolidating within a range, despite the fact that
most economic numbers have come in weak, we now have to wonder why bonds haven’t
managed to break out to the upside.
STOCK INDICES
The outlook for the market remains negative, as
the trend in prices is down, Intel earnings were weak and expectations are for
some of the weakest US retail sales readings in 16 months. Meld into the
equation today slightly disappointing Richmond Fed readings from yesterday,
another shut down of Iraqi oil production (due to another pipeline explosion)
and most roads appear to be pointing downward. While we continue to suggest that
technical conditions in the stock market are approaching oversold levels, the
market isn’t so oversold that further losses will be avoided.
DOW
The overnight action has the September Dow probing below the July 8th low and
that could leave the market with a near term targeting of 10,150. The top of the
May consolidation would become the next downside targeting in the Dow at 10,050.
McDonalds suggested this morning that earnings should come in above expectations
and with same store sales rising aggressively in the report this morning there
might be a tempering of the existing bear tilt. In short, the track in the Dow
is down but the McDonalds information puts the market in a better position to
attempt to forge a bottom after more losses today. In fact, the McDonalds
information leaves the IBM earnings report in a position to become a salient
positive catalyst. Therefore, weaker action during the session today might
result in a bottom.
S&P
Typically the S&P doesn’t bottom effectively off the type of chart action seen
this week. In fact, the type of action seen this week would seem to project even
more losses ahead. However, seeing the September S&P take out the July 12th low
of 1106.20 this morning, might be enough overdone action to play for a near term
bottoming, as that should bring the spec long down to a significantly liquidated
posture ahead of the IBM report after the close today. Look to buy the September
S&P at 1105.65. Those that bought August E-Mini 1100 puts should take profits on
that position at 1900 this morning. In fact, most August put holds should take
profits on the lower opening and move to the sidelines, as the rate of
additional decline in this market might not be enough to offset the expanding
time decay impact anticipated in the August instruments.
FOREIGN EXCHANGE
US DOLLAR
We suspect that the Dollar bounce was mostly
technical in nature yesterday, as the US economic report flow just doesn’t seem
to facilitate bottom picking in the Dollar. In fact, with the expectation for a
slack US retail sales report this morning, we have to think that the path of
least resistance in the Dollar is down and that the Dollar is a short term sale
on a rise above 87.94. While it is possible that the market is unwilling to
attack the short side of the Dollar ahead of the coming inflation readings, once
the market sees those readings we expect the Dollar to resume the downward track
seen since the May highs. Top of the down trend channel in the September Dollar
comes in at 88.92 but we hardly see the Dollar managing a rise to that level
over the coming three sessions. Therefore, traders will have to be content to
get short the market around 88.00. Even if US retail sales manage to come in
better than the dismal early expectations, we think that the Dollar is a sale.
EURO
The Euro correction yesterday should put the Euro in
a position to track higher. A Euro zone economist predicted overnight that the
Euro zone economy would begin to expand into 2005 and the only draw back from
that forecast is that the market has to wait until the end of the year to see
solid growth. Tempering the bullish tilt off the Euro zone economic forecast,
are concerns from the ECB that German confidence levels haven’t recovered and
the bank also sees the lack of structural reform in Germany as a barrier to
faster growth. Regardless of the internal deficiencies in the Euro zone, it
would seem like the Euro has an upward track off the slack Dollar attitude.
Therefore, aggressive traders should consider buying the September Euro at
123.10 for a short term trade up to 124.50.
YEN
Unfortunately Intel earnings undermine the Japanese
stock market and at the same time undermine the Yen. However, we suspect that
critical support in the yen at 91.56 will hold up, but a failure to hold that
level could project prices down to 91.00.
SWISS
Like the Euro, the Swiss correction yesterday puts
the market in a strong position to rally off soft US economic readings this
morning. We see no reason for the Swiss uptrend to come to an end from a
fundamental perspective, especially if the US economy is constantly in question.
Therefore, we expect critical support at 81.00 to hold, but a trade and close
below 80.87 would project a slide down to 80.00.
BRITISH POUND
The UK showed its June jobless rate to have declined
by 9,600, which is a stronger reading than expected. It should also be noted
that wages in May were up but not as much as expected. Therefore, we see the
scope for more gains in the Pound, especially since the Dollar looks to offer
little resistance. Traders should be willing to buy a minor correction to
184.56, looking for a run to new highs.
CANADIAN DOLLAR
A loss of momentum in the Canadian leaves the market
with the potential to correct. However, we doubt that the Canadian will fall
below the prior sessions low and that the September Canadian should be able to
respect support at 75.59 today.
METALS
OVERNIGHT
London Gold Fix $404.00 -$.25 LME COPPER
STOCKS 95,850 mt tons -925 tons COMEX Gold stocks 4.428 ml -410 oz Comex Silver
stocks 117.0 ml -514,031 oz.
GOLD
Apparently the Asia gold market was attempting to
factor a return of inflation and with the coming US inflation readings, the
ongoing insurgent attacks in Iraq (an oil pipeline was attacked again yesterday)
we can understand renewed long interest in gold. With the Dollar also under
light pressure, one would expect the gold to see some bargain hunting following
the surprisingly sharp correction yesterday. While the US will released
inflation numbers on Thursday and Friday, we suspect that retail sales readings
today will foster weakness in the Dollar, which in turn should lift gold.
SILVER
The silver market held together better than expected
during the recent broad based metals correction and has now managed to bounce.
Critical support in September silver comes in at $6.375 and a breakout above the
up trend channel takes place with a rise above $6.613. While silver should
generally be supported by talk of inflation we doubt that the funds dominating
silver are in the market for that prospect.
PLATINUM
While October platinum did manage to bounce off the
40 day moving average, the market hasn’t completely left the profit-taking tilt
behind. However, talk about inflation in Asia would seem to leave platinum
supported. Reports yesterday of lower US platinum imports in May compared to the
prior year is a minor negative to the market today, as the focus of the Platinum
market is on Asian demand instead of US demand.
COPPER
The market seems to be a little weaker this morning,
as Asian selling dampened the strength seen early in the week. Supposedly
Chinese speculators were selling copper on the LME and that facilitates the
profit taking mode that has surfaced off and on since the market failed at the
critical 130 level. With negative Intel earnings deflating macro economic
optimism and expectations calling for weak US retail sales readings this
morning, it is possible that the macro economic condition adds to the downward
tilt in copper prices.
CRUDE COMPLEX
The market comes into the action this morning
slightly higher off the Iraqi pipeline bombing and primed to react to weekly US
inventory data. We are not sure what the market makes of the recent IEA
projections that suggested that OPEC has an effective spare capacity of 620,000
barrels, as the same report suggested that significant US product tightness was
expected to develop toward the end of the year. The IEA suggested that demand
for crude would rise by 300,000 barrel per day into the end of the year, but
they also suggested that supply was going to climb by 1.2 million barrels in
2005.
NATURAL GAS
The natural gas market continues to be de-linked
from crude oil, as prices managed only a fleeting bounce in the hours after the
Iraqi bombing. While some parts of the US have heated up, the cooling demand
outlook remains sedate and the hope for a bull market now lies mostly with the
direction of the regular energy complex. We do think that natural gas prices
will find the $6.00 level, as a value zone and that prices significantly below
$5.75 in the September contract should be considered a buying opportunity.