Futures Point To A Lower Open
8/18/2004
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INTEREST RATES
While we are becoming more skeptical of
Treasuries, as prices move into the upper quadrant of the last months trade,
there is very little fundamental cause to reject lofty prices. In fact, even
with the fund long becoming rather sizeable and open interest at the highest
level since March 1st, the market is only slightly overextended. From a
historical perspective, the bonds have seen the fund long reach above 80,000
contracts, but with a rise above the August highs, the fund long would probably
be pegged at only 50,000 contracts and that would then be the biggest fund long
position since the 1998 rally.
STOCK INDICES
We think the short covering burst has run its
course. It was possible that a passing of the Venezuelan energy threat could
have led to a near term unwinding of the bull track in energy prices, but
instead the Yukos bankruptcy has stepped in and assumed the headlines. It also
seems like the Iraqi provisional governments attempt to broker a Peace deal with
Al-Sadr has failed and that is another negative.
DOW
We see the September Dow falling below a critical pivot point on the charts at
9,939. However, the Dow might find solid support down at 9,900 and a rise back
above 9,978 would certainly catch some shorts by surprise. We don’t see a
significant slide in prices over the coming sessions, but we do expect a back
and fill action, as the gains this week were either mostly technical in nature,
or were simply overdone fundamentally.
S&P
While the September S&P could find solid support around 1077.40, a decline to
1075.50 wouldn’t be a surprise. On the other hand, seeing crude oil prices rise
to new highs during the session today could accelerate the liquidation in the
S&P and give an ultimate downside target of 1068.20.
FOREIGN EXCHANGE
US DOLLAR
The Dollar really isn’t showing much reaction to its
numbers or numbers produced by other countries. In fact, considering the wave of
information Tuesday, the Dollar could easily have soared but instead the market
showed almost no reaction. It certainly seems like the path of least resistance
in the Dollar is down but without something significant, the trade can’t seem to
muster enough selling volume to spark a slide in the Dollar. With no economic
reports today, the Dollar should really be expected to forge a tight range.
Aggressive and short term traders might consider getting short the Dollar on a
minor bounce to 88.25 using a tight objective of 87.93. More conservative
traders might consider selling the October Dollar 89 and 90 calls for a position
play.
EURO
The Euro certainly dodged a bullet yesterday given
the combination of weak numbers from the Euro zone and partially favorable
numbers from the US. Therefore, the market prefers the upside tilt in the Euro
but seems to be held back by low trading interest. It is certainly possible that
ongoing stories about budget deficits holding back Euro zone growth, are serving
to steer investors away from the Euro. However, the September Euro would seem to
have solid support down at 123.04 and with a thin report slate today, short term
traders can probably buy the September Euro at 123.11 looking for a move to the
top of the pattern up at 123.78.
YEN
While the Nikkei was higher overnight, the Japanese
economy is being held back by the fear of even higher energy prices and the
uncertain track of the US economy. The Yen seemingly forged an upside breakout
early this week but now it seems that the market is lacking follow through
capacity. Those that are long the Yen probably have to risk the position to at
least 90.70.
SWISS
That triple top in the Swiss at 80.87 looms as
significant resistance. In the near term, a failure to hold above 80.29 could
seriously undermine sentiment and could result in a quick slide to 80.00.
BRITISH POUND
With the BOE Minutes showing a unanimous vote in the
last rate hike, it is clear that the Central bank is focused on controlling
inflation. In the near term, too much concern over inflation means that growth
prospects are injured and that hurts the currency. A slide down to 181.45 in the
September Pound shouldn’t be ruled out in the near term.
CANADIAN DOLLAR
The Canadian might be the only currency with a
defined near term trend. Traders should be prepared to buy the September
Canadian on a setback to 76.34.
METALS
OVERNIGHT
London Gold Fix $403.20, +$1.75 LME
COPPER STOCKS 111,100 mt tons +30,925 tonnes COMEX Gold stocks 4.709 ml Unch
COMEX Silver stocks 112.19 ml +1,064
GOLD
If the Dollar continues to drift higher this
session, the gold market could see a choppy trade, but there seems to be enough
positives for this market to hold prices above the $400 level. Gold’s rally
appears to be more broad based than just off of currency movements since gold
was able to trade higher in the face of a firmer US Dollar Tuesday. A mixed bag
of economic news with a decline in the CPI rekindling fears of deflation
pressured the gold market early in Tuesday’s session, but fund buying above $400
in the October contract came in to take price higher.
SILVER
We thought Dec silver should have been able to give
a stronger performance Tuesday given gains in housing construction and
industrial production. However, the market did hold up fairly well in the face
of a firm Dollar. Positive market sentiment and a bullish technical setup should
eventually firm Dec silver back to $7, but with a lack of fresh news currency
movements and some profit taking could make for a sideways to lower trade this
session.
PLATINUM
Russian officials have decided to keep supply
information on platinum group metals a state secret at least for now and that
could help underpin the market as traders are kept guessing as to how tight
world platinum supplies really are. With October platinum prices rallying nearly
$67 just in August, no doubt the market is technically over bought and due for a
correction. Profit taking in Japan pressured platinum overnight on concerns
physical business has been scarce recently.
COPPER
A huge increase in LME copper warehouse stocks with
talk of another 20,000 to 24,000 tonnes expected on Thursday pressured copper
prices lower in European trade. As we mentioned yesterday, a Reuters story
reported traders were holding copper in private stocks in an attempt to create a
supply squeeze. It appears that a trader has now shifted private stocks back to
the LME warehouse, so ideas that declining copper warehouse stocks are due to
shifts in storage rather than actual physical demand for the metal seems to have
some merit.
CRUDE COMPLEX
The energy complex shifted its bullish focus back
onto the Yukos threat around mid session Tuesday and was given an added lift off
the expectation that US inventories would show a decline because of last week’s
hurricane disruption. The energy complex might also have been lifted by the
private forecast by Petroloigistics saying that the July OPEC production
actually declined by 160,000 barrels per day. Surprisingly Saudi Arabian
production declined and Iraqi production increased in July.
NATURAL GAS
The natural gas market probed into lower territory
and stopped us out of a recent long play and we are glad to be out as the
downside pressure on natural gas might intensify in the coming sessions. While a
major downside throttling might require some downside in crude oil, we suspect
that the cooler than normal weather for the end of the week will keep the bias
down in prices. In fact, if the small spec long position begins to stop out of
its long held positioning, we suspect that October natural gas prices might
slide all the way down to the $5.40 level.