Futures Point To A Lower Open
9/20/2004
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INTEREST RATES
The Treasury market has once again fallen away
from its recent highs, as if to correct the overbought status. However, with the
contraction in the University of Michigan sentiment figures last week, soft
equity prices and firm energy prices, the bull camp would seem to be justified
in their ongoing long interest. In looking at the sweep of numbers due out this
week and the expectations for those reports, it would seem like the bull camp
will continue to control prices.
STOCK INDICES
While the stock market continues to exhibit
periodic recovery capacity, it certainly seems like the market has at best
entered a consolidation pattern. Certainly the market has to be a little
undermined by the resurgence of energy prices and by the slack pace of recent
scheduled reports. We also have to wonder if the market is fearful of the
upcoming FOMC meeting, as the Fed is likely to acknowledge the continued
existence of a soft spot in the economy, or is likely to surprise the trade with
a premature interest rate hike.
DOW
The weekly COT report showed the fund and small spec positioning in the Dow to
be net short 7,000 contracts, which is a moderately large short compared to the
record short of 16,874 contracts that was posted in August of 2003. Near term
support in the December Dow comes in at 10,229 and a decline to that level in
the coming 36 hours seems likely. However, unless the Fed hikes interest rates
we doubt that near term support will be violated, but a violation of near term
support would then provide a lower target of 10,190.
S&P
Near term downside targeting in the December S&P comes in at 1120, but unless
the Fed surprises the market with a rate hike on Tuesday we doubt that initial
support will fail to hold. Lower support in the S&P is seen at 1114.50.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seems to have a slight upward bias but a
rally in the Dollar would not seem to have fundamental justification. If there
is a justification for a higher Dollar, it comes from the fear that the US is
set to hike interest rates. While we can’t rationalize the need to hike interest
rates, the market is pretty convinced that the Fed is set to act on Tuesday.
Therefore, the Dollar could continue to get a buy the rumor, sell the fact type
rally. In the near term, the Dollar should see solid support from the 89.00
level and might not see significant resistance until the December Dollar Index
reaches up to 90.00.
EURO
Given the chart setup in the Euro it would seem like
the Euro is poised to slide down to 121.00 and could fall to 120.50. However, we
are concerned that the US economic report slate this week could deter ongoing
selling in the Euro. In fact, we expect the Euro to be under pressure today and
possibly on Tuesday morning but that somewhere before mid week, the Euro will
manage to find a critical low.
YEN
The coiling in the Yen continues and the charts
continue to see a pattern of slightly lower highs, which would seem to suggest
that there is a slight downward bias. For the near term, the December Yen should
be able to respect support of 91.00 but if the US Fed fails to hike rates and
suggests that the US economy is still pretty soft. that could result in a
breakout.
SWISS
A bad technical trade in the December Swiss
overnight would seem to leave the Swiss in a downward track. Near term downside
targeting in the Swiss comes in at 78.60 and 78.43.
BRITISH POUND
The near term downside targeting in the Pound comes
in today at 176.76. With reports that UK inflation remains under control and the
magnitude of recovery attempt last week, we really doubt that the Pound will
fall below near term support. In fact, we think that the Pound could become a
buy in the next 24 to 36 hours.
CANADIAN DOLLAR
Hopefully the Canadian low last week was a solid
low, but the inflation situation in Canada might be a thorn in the side of the
bull camp. Expect the uptrend to continue but make sure the December Canadian
Dollar holds above 76.70.
METALS
OVERNIGHT
London Gold Fix $404.50 -$.10 LME COPPER
STOCKS 101,850 mt tons -1,000 tons COMEX Gold stocks 4.883 ml Unchanged COMEX
Silver stocks 109.9 ml -103,637 OZ
GOLD
With the gold market falling back toward critical
support around $405 and the Dollar mostly tracking sideways, we doubt that gold
is poised for an aggressive move. The weekly COT report showed a minor decline
in the net spec long position but the position continued to hold at a lofty net
long of 127,000 contracts. We doubt that the Fed will directly influence the
gold market with their actions on Tuesday, but in the event that the Fed hikes
interest rates that could serve to put some light pressure on gold as a
premature move to hike interest rates would certainly lower the inflation risk.
SILVER
The attempt to rally last week isn’t being followed
through on in the early going today and with the contraction in the University
of Michigan consumer sentiment figures last Friday, the macro economic outlook
has to be considered a slight negative to silver. The weekly COT report showed
the net spec and fund long in silver to be 52,000 contracts, which was a decline
of roughly 11,000 contracts. Therefore, silver is somewhat overbought but is now
in a slightly better technical condition than it was two weeks ago.
PLATINUM
The platinum market continues to be in a weakened
position on the charts and with the weekly COT report showing a net spec long of
2,100 contracts, this thinly traded market is still overbought. Near term
downside support is targeted at $825 and resistance is seen up at $851.
COPPER
With Chinese prices managing to extend last week
strength, we suspect that the US copper market will have a positive bias. The
weekly COT report showed the net spec long position at 24,000 contracts, which
is a net increase of 3,100 contracts which means that the market is slightly
overbought. Furthermore, with the copper market trading within close proximity
to the highest levels in 10 months, we are a little concerned, especially if the
market becomes more concerned about future growth rates.
CRUDE COMPLEX
The crude oil market managed a very impressive
pulse up to end last week and that should leave the bull camp somewhat in charge
of the market as we enter the new week. In looking at the most recent COT report
reading it would not seem like the market is overextended in either the crude or
unleaded market. In fact, the unleaded market is remarkably balanced considering
the 12 cent rally off the August 31st low in the unleaded market.
NATURAL GAS
The natural gas market made a massive upward pulse
on Friday but failed to hold all of the gains. It seems that US natural gas
operations might have been damaged more than initial projections and in turn may
not be back on line as quickly as was initially forecast. However, we have to
think that natural gas is still a sell on rallies above $6.40 in the December
contract.