Futures Point To A Lower Open
8/30/2004
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INTEREST RATES
After flirting with an upside breakout last
Friday, the Treasury market fell back away from the highs but remains poised
within striking distance of the upside breakout point. We suspect that the net
shake from the Personal Income and Spending reports this morning will be
supportive to Treasury prices, as the trade expects spending to continue a
recent softening pattern. It is also possible that energy prices are going to
firm again and that could injure sentiment enough to evoke even more concern for
the economy and that could push Treasury prices into an upside breakout.
STOCK INDICES
While we don’t want to attach too much
significance to the early action this morning, we get the feeling that the stock
market isn’t going to have a good week. With Treasury prices suggesting trouble
in the US economy, energy prices firming off weekend Iraqi attacks and the GOP
convention providing a large target for the Press to criticize the current
economic condition, we are fearful that selling will dominate the action this
week. In fact, with the liberal media even managing to downgrade the Democratic
platform following their convention, it would seem like the GOP is a sitting
duck.
DOW
As mentioned before, a trade below 10,160 could set the market up for a more
moderate correction, with a downside target of 10,000. However, a trade back
above 10,200 at any time could put recent shorts on the hot seat and propel a
rise to 10,246.
S&P
With a critical pivot point coming in at 1103.80 and 1102.10, it would seem that
the market will offer early clues as to its temperament. The bias is up from the
August trend but the market must manage to hold above support. The net spec and
fund position in the S&P is surprisingly level, considering the gains of the
last month and that also seems to give the bull camp a slight edge. If forced
into the market we would probably be long but extremely skeptical.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to surprise the trade with the
favor it has managed to garner. Maybe the southern Iraq oil pipeline attacks
have given the Dollar a lift but we also think that economic analysis is
providing the Dollar with a lift. Over the weekend, the market saw more
commentary suggesting that European growth is seriously lagging behind the US
and that is probably cause for the early bidding up of the Dollar. It would seem
that the Dollar is indeed headed back to the July and August consolidation highs
up at 90.49 but in order to keep any gains that the Dollar makes this week, it
will be imperative that the trade come away from the payroll report with a
positive feeling toward future US growth. It seems as if the economists are
sticking with some rather lofty expectations for the payroll report and that
could breed a significant amount of price volatility in the subsequent sessions.
Near term critical resistance comes in at 90.10, while critical support comes in
at 89.62.
EURO
As mentioned before, the trade continues to discount
the prospect of growth in the Euro zone, even though Italy managed to post a
decent retail sales increase of +0.7% in June. Once again the trade thinks that
real slowing took place from the beginning of June to the end of July! While the
Euro has recoiled away from the lows last week, we would be an interested seller
on a rise to 120.57.
YEN
Even though the Japanese stock market has managed to
maintain a generally positive stance toward the Japanese economic outlook, the
currency isn’t getting as much benefit of the doubt. With a series of respected
officials expressing concern for growth in Japan off soaring energy prices, it
would seem that the Iraq developments over the weekend will apply some pressure
to the Yen. Near term downside targeting in the Yen comes in at 90.58 but a
break out below that level could target 90.45.
SWISS
While the Swiss did forge a lower low overnight, it
has managed to reject part of the selling and bounce significantly into the US
regular action. Therefore, traders might want to wait for a rally to 78.35 to
get short the September Swiss.
BRITISH POUND
A significant downside breakout overnight leaves the
Pound injured. In fact, after the events last week, we would have expected the
Pound to capitalize on US Dollar vulnerabilities, but that apparently isn’t
happening. Therefore, one has to fear more declines and a possible retest of
178.00. In order for the Pound to shut off the selling track, the US is going to
have to post significantly disappointing numbers this Friday.
CANADIAN DOLLAR
Even the Canadian is showing a failure of support on
the charts and that could signal a temporary correction and a slide down toward
75.50.
METALS
OVERNIGHT
London Gold Fix $406.85 Closed LME COPPER
STOCKS 107,825 mt tons Closed COMEX Gold stocks 4.823 ml -98 oz COMEX Silver
stocks 109.3 ml Unchanged
GOLD
While energy prices have not responded to the
apparent shutdown of all southern Iraq oil flow, it would seem that the gold
market is finding support from the overnight developments. With the London
markets closed due to holiday speculative interest might have been channeled
directly into the US gold market. The weekly COT report showed the gold to have
a net spec and fund long of 150,000 contracts, which is a rather surprising long
position.
SILVER
A pattern of minimal higher lows is hardly a ringing
endorsement for the bull case but in general the market does seem to be upwardly
biased. The weekly COT report in silver showed the fund and small spec position
to be 74,000 contracts and that does seem to leave the market vulnerable to stop
loss selling if chart support levels are violated at 657. With silver below the
moving average and the funds a key component of the bull camp, we are fearful of
a near term setback to levels below $6.50.
PLATINUM
The platinum market comes into the week with a spec
and fund long of 3,200 contracts and that position is understated, given the
action since the report was measured. The influence of China remains paramount
to the platinum market with platinum and copper seemingly trading in sync off
the ebb and flow of Chinese demand. In the near term, we fear that platinum
might be in for a minor corrective swing.
COPPER
Chinese copper prices were slightly higher
overnight, but US prices are not showing much in the way of upside momentum.
Considering the action last week it would seem that copper enters the week under
some suspicion but with the net spec and fund long in copper holding just barely
above 20,000 contracts it would not appear that the technical picture is overly
vulnerable to liquidation. However, the macro economic outlook continues to be
somewhat negative and that has robbed the market of consistent buying fuel.
CRUDE COMPLEX
While prices are attempting to firm in the wake
of what seems to be a total shut down of the southern Iraq oil flow (some
suggested that the flow might be down for a full week) it is possible that
increases in Northern oil flow from Iraq are serving to dampen the speculative
tilt. We did suspect that prices will generally firm into the put opening as the
headlines influence more and more traders. None the less the energy complex
comes into the new week significantly off the August high (nearly $5.00 off the
August high) and with the net spec and fund long in crude oil certainly reduced
by the corrective action seen since the COT report was measured,the crude oil
market is probably surprisingly balanced from a technical perspective.
NATURAL GAS
The charts in natural gas are pretty negative and
with the small spec and fund position still net long in the last COT report, we
are not prepared to call for a major bottom. In fact, given the additional
downside seen since the COT report was measured, the natural gas market probably
enters the week with a minimal net short position. Without a fundamental reason
to call for a low, we will wait for the adjusted spec and fund positioning to
reach 20,000 to 25,000 contracts short before looking for a critical low.