Futures Point To A Lower Open
8/20/2004
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INTEREST RATES
Yesterday it seemed like the Treasury market was
ready to shift back into an anxious economic position as energy prices ended up
thrusting into new contract highs. However, with US economic information coming
in somewhat mixed, the market saw its sentiment diffused slightly. Leading
indicators were down but they were balanced by a rise in the Chicago Fed
national activity Index.
STOCK INDICES
After attempting to discount the big picture oil
market fundamentals and the fighting in Iraq, the equity market finally began to
knuckle under to the bear tilt. In looking back to the developments Thursday it
is clear that the economy remains weak and that the slack jobs condition is
extending into August. The Philly Fed readings yesterday showed a distinct
softening in the August payroll readings and that means the Fed’s comments
about the slowing being short lived, are being seriously challenged.
DOW
While we get the sense that the market is attempting to hold together and at
time seems to be trying to look beyond current energy prices, the market is
fresh off a significant corrective bounce, which should leave it vulnerable. In
short, an overbought short term condition, soaring energy prices, deteriorating
economic numbers and intense fighting in Iraq all seem to give the bears
control. Near term targeting in the September Dow is 9,983 and then again down
at 9,950.
S&P
We see several downside targets for today’s action. The first target is
1085.50, with an even lower target of 1082.20. While the path of least
resistance is down, we don’t get the sense that prices are going to fall at an
aggressive or panic stricken pace. However, a sudden end to the Iraqi siege
(which is unlikely) would certainly result in an aggressive recovery. We must
note that a small voice in the back of our head is suggesting that stock prices
aren’t poised to come apart, despite the fact that most of the evidence points
to a washout.
FOREIGN EXCHANGE
US DOLLAR
We are a little surprised that the Dollar has
managed to stop its recent slide and hold the prior days low. The US economic
report slate is empty for the coming sessions and when US numbers are floated
they are mixed to weak. Therefore, the Dollar doesn’t appear to be getting any
help against the generally weak existing pattern. We have to think that the
fighting in Iraq and soaring energy prices are more damaging to the Dollar, than
to the Euro, or the Canadian and that might be just enough to leave the bears in
control. In a big picture sense, we see no reason why the Dollar wouldn’t
continue to slide and eventually track back to the July lows. However, in
looking at the overnight bounce, it is clear that the Dollar is going to take
its time as it works downward. In order to turn near term sentiment around, the
Dollar will have to regain a critical technical pivot point at 88.14.
EURO
For some reason the Euro isn’t punching up into
new highs for the move and that could be because the Euro zone is poised to
release disappointing economic information. In fact, it would seem that traders
are really hesitant to buy the Euro, so far off the August lows. In the end, the
Euro zone isn’t immune to soaring oil prices and many might see the US Fed to
be a better steward in troubled times, than the fledgling ECB. The path of least
resistance is up but the risk and reward setup for the bulls is not overly
impressive. The trend is up in the euro unless it falls back below 123.23.
YEN
So far, seeing several bird flu issues in Vietnam
and Thailand hasn’t served to impact Asian market sentiment, but with that
issue operating under the radar and serious concerns about a contraction in US
disposable income, we have to wonder if the outlook for the Japanese economy
isn’t in question. Overnight the METI reported a rise of.6% in all Industry
activity and that at least gives the Yen a chance of extending the pulse up
since mid month. However, the METI information was old information from June!
The Yen has a weak uptrend tilt but that only comes by default and if the Dollar
is down.
SWISS
Technically the Swiss seems to have fallen back from
the mid week attempt to rally and might now be headed down to chart support of
80.20 and possibly 80.00. The problem is that the market isn’t in a flight to
quality mode and the Swiss economy really doesn’t seem to be capable of
attracting capital.
BRITISH POUND
The Pound at times is in favor, but in looking at
the charts the market is mostly coiling sideways. However, the Pound has seen
enough periodic favor to respect close-in support of 181.63 and will probably
continue to show periodic gains.
CANADIAN DOLLAR
While the rest of the currencies waffle, the
Canadian continues to plod higher and as long as the outlook for North American
economies remain half way positive, we assume that the Canadian will manage to
rise toward the January highs up around 78.00.
METALS
OVERNIGHT
London Gold Fix $405.80, -$0.50 LME
COPPER STOCKS 110,450 mt tons -225 tonnes COMEX Gold stocks 4.78 ml +62,633
COMEX Silver stocks 111.39 ml -600,395
GOLD
With the Dollar seeing some short covering over
night, Dec gold may see more of a volatile trade this session. A firmer Dollar,
profit taking in the oil market or a lull in the Iraq fighting could easily
bring about lower gold prices. However, don’t expect traders to want to get too
short gold ahead of the weekend considering the situation in Iraq remains highly
volatile.
SILVER
Dec silver is having trouble getting above the $7
resistance area, but the chart looks good with a move to $7.27 possible once
resistance is taken out. A lack of economic reports will put focus squarely on
the Dollar which will need to be driven lower ahead of the weekend in order to
push Dec silver through $7. Support for Dec silver comes in at $6.765, $6.66
then $6.60.
PLATINUM
Gains in both the Dollar and the Yen prompted Asian
selling in Platinum. Oct platinum still looks to be technically over bought and
a move back to at least the $840 level may be needed before traders are
comfortable adding to long positions. While world supplies are tight, the drag
on world economic growth from soaring energy prices may also begin to cool
industrial demand for the metal.
COPPER
LME stocks showed another small decline, but
Shanghai stocks saw a small increase. Therefore, the stock situation remains
uncertain and the firmer Dollar, rising oil prices and a weaker stock market
seem to be enough to keep the pressure on copper. While the market is relieved
that warehouse stocks haven’t seen another big jumped so far, given news stories
that traders in Asia have private supplies of copper stashed away still leaves
us questioning whether stocks are being drawn down by actual industrial demand
for the metal.
CRUDE COMPLEX
It took a while for the regular energy complex to
soar but with all the reports of deaths and violence in Iraq the market was left
with little choice but to pulse into even higher ground. Unfortunately for the
world economy and the shorts the crude and gasoline futures markets probably
aren’t even significantly overbought despite the sharp run above the last COT
report mark off. As we have been saying it would seem that there is very little
selling holding this market back and therefore, a small amount of buying is
going a long way.
NATURAL GAS
The natural gas market couldn’t avoid the pull of
soaring crude oil prices as the BTU comparison traders saw natural gas as a
value. In fact, with crude oil prices possibly set up for a massive upside
extension, it is likely that natural gas follows it higher. The weekly injection
report showed a build of 78 bcf and the annual surplus increased by 1 bcf.