Futures Point To A Lower Open
7/22/2004
INTEREST RATES
The Treasury market managed a surprisingly swift
slide off the July highs and did so off the theme that the Fed might still be
poised to hike rates later this year. In other words, the market would have
preferred that the Fed leave the question of higher rates open ended. Some of
the selling of the last 48 hours was fostered by the suggestion from Greenspan
that the June slowing was temporary.
STOCK INDICES
The stock market simply corrected its oversold
condition with the rally on Tuesday and that might actually help facilitate more
selling in the sessions ahead. Apparently the stock market was not permanently
impressed with the statements from the Federal Reserve, especially since one can
probably interpret the Fed statements this week to mean that higher US rates are
ahead. It has also become clear that the earnings report flow isn’t going to
right the ship in the stock market and that makes the bear camp a little more
aggressive in their attack.
DOW
More downside is ahead in the Dow, with the bottom of the May consolidation seen
down at 9,900. While we don’t see the need to beat stock prices all the way down
to the May lows, a dip below 10,000 seems likely. Given the negative attitude
toward the growth pace, it could take a series of better than expected economic
readings just to turn off the bearish track in prices. Next support is seen at
9,981.
S&P
The big range down wash yesterday would seem to set the market up for a
bottoming move, but that could mean a temporary washout to 1084.50. Traders
getting long from current levels might have to risk the position to 1079, so it
would be advisable to wait for even lower levels to get long. Things aren’t that
bad economically or psychologically, so we won’t be afraid to pick a bottom,
especially if the market forges a bonafide classical reversal signal. Early this
week, the market forged a quasi bottoming signal but didn’t forge a big range
down exhaustion move prior to the reversal. Therefore, we predict a critical low
somewhere between 1087 and 1079. The low could come in the next two days!
FOREIGN EXCHANGE
US DOLLAR
We suspect that the recent Dollar interest will
begin to wane and that the lackluster standing of the US economy will now result
in a resumption of the slide in the Dollar. While the US initial claims readings
might provide the Dollar with a lift, we suspect that the leading indicators
report will undermine sentiment in the Dollar and possibly restart the selling
in the Dollar. While the market wants to accept the Greenspan assessment that
the recent slowing in the US is temporary, that view will be harder to swallow
in the face of weak economic report flow. However, the promise of higher US
interest rates ahead might be just enough to discourage aggressive selling of
the Dollar, as was seen in early July. If the US stock market were not so weak,
we might not be bearish toward the Dollar but with the stock market apparently
headed back to its lows of the year, we think it is safe to sell the Dollar 70
points above the low of the week!
EURO
While the Euro would seem to be poised to regain
ground against the Dollar following the large technical liquidation early this
week, the Euro zone Industrial orders report declined by 0.3% and that weak
reading could defeat some of the optimism toward the Euro currency. Trend line
support in the Euro comes in at 122.00 with the middle of the channel seen all
the way up at 123.53. Traders should get long the September Euro but one should
not tolerate a slide back below 122-12.
YEN
The pattern of lower highs in the Yen is difficult
to discount. With the US economic outlook sluggish, the Yen might have trouble
reacting favorably to overnight comments from the BOJ that the Japanese economic
recovery is firmer than expected. Therefore, traders probably have to be on the
long side of the Yen looking for a rise to 92.60, but not risking the position
below 91.07.
SWISS
Trend line support in the Swiss comes in at 79.66
and near term resistance isn’t seen until 80.69. Since the Euro had economic
readings that could mitigate the upward track, the Swiss might be in for some
spill over buying that could have went into the Euro.
BRITISH POUND
We suspect that the recent correction leaves the
Pound in a good position technically and with UK retail sales rising by 1.1%,
the Pound has a solid fundamental base to work higher off.
CANADIAN DOLLAR
We think the recent break in the Canadian was a
healthy break that could set the market up for a return to the July highs. The
BOC continues to talk very upbeat about the Canadian economy, as they suggested
that the economy has very little slack. Seeing tight capacity might mean that
the BOC will have to raise interest rates later this year and that could take
some of the upside out of the currency. In the near term, we think that the
Canadian is easily capable of seeing a return to the July highs.
METALS
OVERNIGHT
London Gold Fix $395.00 -$6.10 LME COPPER
STOCKS 91,925 mt tons -400 tons COMEX Gold stocks 4.471 ml Unchanged Comex
Silver stocks 115.1 ml +606,311 oz.
GOLD
The gold looks to come into the session under
pressure as the lingering impact of Greenspan was still being seen in Asia
overnight. Apparently the gold market is very concerned with the prospect of
rising rates and is also undermined by the mere prospect of progression in the
US recovery. With the Dollar continuing to hold most of its recent gains, we see
October gold having the capacity to slide to near term consolidation support of
$393.3.
SILVER
A minor rise in exchange stocks shouldn’t be that
big of an issue but with the bias in silver already pointing down, almost
anything could facilitate more downside. Near term downside targeting is seen
down at $6.28 but a more pronounced slide to $6.225 would not be shocking when
one considers that all the metals were under pressure yesterday. To turn off the
slightly negative bias, the September silver will have to manage a rise back
above $6.45.
PLATINUM
After a quasi double, top the platinum market almost
forged a gap down trade this morning. We think that October platinum will
violate close-in support at $820 today, with an ultimate downside target of $817
on this wave down. It might be helpful to note that platinum continues to
respect the pattern of lower highs and that leaves the overall trend pointing to
the downside.
COPPER
Copper in Asia appeared to be a little higher this
morning and that was probably bargain hunting after the big decline posted on
Wednesday. The Dollar rally has certainly played a role in the copper declines
this week, as that raises the cost of US copper to international buyers. The
copper market has managed to find some support on the charts around the channel
support line of 126.10 One would have expected copper to find favor with the
Fed’s statements that the recent US economic slowing is temporary, but the
copper market isn’t that focused on US conditions.
CRUDE COMPLEX
Despite talk that Saudi Arabia is going to
provide up to 9.5 million barrels per day of oil in August and comments from
OPEC that the market is getting more than enough supply, prices managed to
reject the lows of the day and forge a higher close on Wednesday. The weekly
inventory stats were mixed with crude stocks declining and product stocks rising
and many would suggest that the reports confirm a little more market focus on
crude than on the products. While demand is thought to be rising it is also
thought that supply is rising and that might mean that crude prices will have
difficulty climbing significantly above $42.00 without some fresh problem.
NATURAL GAS
The trade is aware that natural gas prices might
have resumed a tight daily track with crude oil and with some of the highest
heat Index readings of the year, the bias in natural gas might remain up. The
weekly inventory report today is expected to be slightly negative, as the
injection season continues and the trade continues to be deflated by the year
over year surplus dialogue. Talk about stronger prompt demand, seems to verify
the presence of high heat index readings but in order to throw off the bear
track in place since the May high, the high temps will have to entrench.