Futures Point To A Lower Open
9/15/2004
INTEREST RATES
The US retail sales report yesterday was a little
softer than the market was originally expecting to see and with rising energy
prices, weak equity prices and concern for the coming hurricane, we have to
think that the bull camp maintains control for now. We also get the feeling that
early expectations for a +0.5% gain in Industrial Production is a lofty
expectation, when one considers the sloppy track of US numbers over the last
month. In other words, the expectation for the Industrial Production report
could set the stage for a pulse up in Treasury prices.
STOCK INDICES
The stock market continues to be off balance and
in a light liquidation posture. Just as the Treasury market is seeing support
off rising energy prices and concern for the coming hurricane, we have to think
that many investors are discouraged from seeking values in the equity market. We
also concede that the pace of regularly scheduled economic numbers is
discouraging would-be buyers, as the reward for jumping into this market seems
limited at present.
DOW
We suspect that the Dow will remain slightly vulnerable for at least the morning
trade as it is difficult to ignore the potential negative scenarios spinning off
from the storm. Furthermore, it is also difficult to buy breaks in this market
with energy prices remaining strong. However, aggressive traders might go with
the trend and buy a break in the December Dow down to 10,290, using a tight stop
at 10,230.
S&P
The trend is up but the bulls would suggest that by Thursday afternoon, the
impact of the hurricane should begin to diminish. However, a massive storm
surge, that prompts extended US refinery down time, a surprise storm track into
New Orleans or some other unforeseen disaster off the storm could yank away what
appears to be solid chart support in the S&P. We define chart support as 1123
and think that traders should be a buyer of that level. However, stops on fresh
longs probably have to be placed at 1114.20, as volatility off the storm and the
current expiration event could be extensive.
FOREIGN EXCHANGE
US DOLLAR
While a number of other financial and Agricultural
commodity markets are showing a reaction to the impending hurricane, the Dollar
appears to be mostly immune. We do think that the storm issue in conjunction
with its impact on energy prices, is a slight negative to the Dollar but some
traders will suggest that sharply higher energy prices have supported the Dollar
versus other currencies. In the near term, the Dollar would seem to “need†a
strong Industrial Production reading today just to stem the negative economic
report flow and keep some semblance of hope in place for a near term rate hike
in the US. However, the Dollar is mostly without a clear cut theme and is
generally assumed to be in a weak downward motion. Seeing an extremely damaging
storm event could shift the economic pendulum enough to facilitate a slide down
to 88.00. On the other hand, if the storm passes without some horrific result
and energy prices soften, we suspect that this week’s lows in the Dollar will
become solid support.
EURO
The Euro charts continue to look vulnerable with the
123.00 level appearing to be formidable. We also see the Euro charts as a series
of lower highs and waning momentum. Given the recent currency action it is clear
that during Dollar weakness, currencies other than the Euro look to get most of
the benefit.
YEN
The Japanese stock market was down sharply overnight
with concern for heavy industry and that would seem to make overhead resistance
around 92.00 a little more formidable. In the short term, we can’t rule out a
rise to 92.19 but we have to think that an upside breakout will require some
major headline development.
SWISS
We think the Swiss has benefited this week from a
partial flight to quality condition, but we also think that the Swiss chart
lacks the setup to propel prices sharply higher in violation of the existing
downtrend pattern.
BRITISH POUND
A big range down in the Pound overnight seems to
undermine the trade and leaves the currency open more even more declines.
However, the Pound might be able to respect consolidation support of 177.09, if
the US Industrial production readings are much softer than expected this
morning.
CANADIAN DOLLAR
The Canadian isn’t acting as strong as we would have
expected and that is disconcerting for the bull camp. In order to avoid even
more technical selling, the Canadian will have to avoid a trade back below
76.88.
METALS
OVERNIGHT
London Gold Fix $404.80 +$1.30 LME COPPER
STOCKS 103,650 mt tons -475 tons COMEX Gold stocks 4.883 ml -867 oz COMEX Silver
stocks 110.2 ml Unchanged
GOLD
One can’t argue with results and the gold market is
managing to carve out a light upward trend in prices and is doing so with only
minimal support from a sagging Dollar. With Gold Fields suggesting that gold
prices will remain subdued into the end of the year that could discourage some
would-be buyers. Gold Fields doubted that prices would rise above the $427.25
high and projected that prices would only average $407 for 2004.
SILVER
The coiling in silver continues with the pivot point
currently standing at $6.215. An upside breakout takes place with a close above
$6.28, while a downside breakout takes place with a trade below $6.11. We are
still a little concerned that volume and open interest have declined, as that
might suggest that the funds are intent to stay on the sidelines.
PLATINUM
The platinum market continues to be locked in a
range bound by $850 to $825 and like the silver market, we are still not sure
what the focal point is in platinum. At times platinum, silver and copper are
certainly showing signs of tracking off the ebb and flow of Chinese economic
activity. We do think that platinum is solidly underpinned by the tightness
condition and therefore we suspect that the $825 level will hold as support but
that prices near $850 are too close to mid range to buy in at these levels.
COPPER
Despite the fact that copper prices have pulled back
from the recent high, the market maintains a bullish tilt. Chinese copper
futures were down after an extended string of gains but with talk of a possible
labor issue in Chile, we suspect that prices will be supported against
significant price weakness. The copper market has been a little undermined by
recent weakness in the world equity markets but there is a section of the trade
expecting the US Industrial production reading to show an up tick this morning.
CRUDE COMPLEX
The hurricane affect continued to dominate the
action Tuesday and with the weekly inventory readings due out today and the
residual of the OPEC meeting we suspect that volatility could become quite
extensive. According to Press outlets a large percentage of oil rigs in the Gulf
have been evacuated because of the storm and at least 2 major refineries on the
Gulf Coast have been shut down and that could serve to pinch US production in
the coming weeks supply stats. The most recent track of the storm calls for a
landfall somewhere around Mobile Alabama and that could reduce the bullishness
as the mouth of the Mississippi would have been the most disruptive landfall.
NATURAL GAS
While natural gas sagged into the close Tuesday, it
would seem that the hurricane track is easterly enough that natural prices
should begin to soften in the action today. While the January contract did
managed to respect the consolidation lows, a decline below the $6.69 level could
spark more aggressive selling interest, especially if the storm weakens or
continues to track mostly north of toward the East. We suspect that the natural
gas market will decline even if the storm track continues to be North/Northwest.