Futures Point To A Lower Open
9/27/2004
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INTEREST RATES
The Bond market comes into the session this week
looking a little more technically vulnerable than we would have expected, given
the ongoing rise in energy prices, the pace of recent economic numbers and the
general slack macro economic attitude in the marketplace. However, with the net
spec and fund long position in bonds sitting at 81,000 contracts and the market
holding above the level where the COT report was measured, the Treasury market
is moderately overbought. On the other hand, the fundamental condition would
still seem to fully support the bull case, as economic numbers last week were
mostly soft and the equity markets made the biggest decline since late August.
STOCK INDICES
The outlook for the stock market this week
doesn’t look very positive, as some energy analysts are calling for $50 oil
prices and the outlook for earnings and the economy continues to deteriorate.
While seeing high oil prices isn’t a new issue, it would seem like oil prices
are poised to move to a new higher level and that could foster a new layer of
concern for future growth. A noted analyst is suggesting that even more negative
news is needed toward the tech sector in order to get prices down to a fair
value and that certainly fosters ongoing negative sentiment.
DOW
Overnight the December Dow has apparently already violated consolidation chart
support and appears to be headed down to the 10,000 level. In reality, it would
seem that little will support the December Dow until the 9,900 level is
retested. The fact that the Dow was already net spec short in the COT report,
does little to discourage additional selling in the face of ongoing negative
fundamentals.
S&P
The December S&P has limited chart support at 1107 and we suspect that a more
significant decline is in the cards. Initially we expected 1102 to be a solid
support zone, but now it would seem like the market is headed to even lower
levels. Beyond the 1107 and 1102 support levels, the December S&P might end up
testing 1096.
FOREIGN EXCHANGE
US DOLLAR
It would seem like the Dollar is getting some
indirect support from the idea that oil prices are set to rise to another even
higher level. It is also possible that the Dollar is getting simple technical
short covering ahead of the coming two days economic information, as the US is
expected to post some slightly better readings. However, we can’t make a case
for anything besides a minor technical short covering rally. In fact, the Dollar
has significant overhead resistance just under 89.00 that should hold unless
something significant unfolds. In fact, because Euro zone economic dialogue this
morning was slightly better than expected, we would have expected the Dollar to
open weak but in the near term a fleeting bounce might be expected. Critical
support in the December Dollar comes in at 88.41 and resistance is seen today at
88.75.
EURO
As suggested before, the Euro should have been
slightly supported by favorable German Ifo sentiment readings. Certainly the
readings were contractionary but they did serve to mitigate concern for the
slowing pattern in the Euro zone. In the near term, the Euro might have some
technical problems, as a trade below 122.33 could spark some stop loss selling.
Furthermore, the US is expected to post some positive economic numbers, in the
first two sessions of the week and that might facilitate some selling in the
Euro. In short, the December Euro could manage a slide down to 122.15 and
possibly to 121.59 before solid support surfaces.
YEN
The Yen is showing signs of a downside breakout
overnight and we assume that comes because of the BOJ acknowledgement of a soft
spot in the Japanese economy. In other words, the Japanese economy has slid into
the same condition as the US economy. We also think that the Yen is being given
additional pressure by the fact that oil prices are expected to climb to an even
higher level this week. Therefore, the near term downside target in the December
Yen comes in at 90.22 and possibly 90.00.
SWISS
Critical near term support in the Swiss comes in at
79.23 and then again down at 79.02. We would let the market fall today and
Tuesday morning and then begin to look for a place to get long.
BRITISH POUND
The pattern of higher highs leaves the Pound in a
position to lead on the upside. In fact, on a correction to 179.05, traders
should look to get long the Pound.
CANADIAN DOLLAR
The Canadian seems to be capable of more gains, even
if the recent upside track has left the currency a little short term overbought.
However, since the economic pace of most other key countries is weak at best,
the Canadian looks to win by default. Near term upside targeting is 78.55.
METALS
OVERNIGHT
London Gold Fix $409.00 -$0.45 LME COPPER
STOCKS 94,725 mt tons -3,625 tons COMEX Gold stocks 4.951 ml -96 oz COMEX Silver
stocks 108.7 ml -1,215,287 oz
GOLD
The gold market comes into the week with a minimal
upward bias from last week’s upside probe. As long as the series of higher lows
are respected we have to concede that the trend is pointing upward. However, a
rise in the December Dollar above 88.68 could undermine the Dollar and shift the
tide back into the bear camp.
SILVER
While the silver market remains in a narrow uptrend
channel, we are still not sure what the driving force behind the market really
is. At times the silver market seems to be driven by the hope for physical
demand, while at other times silver seems to be driven by gold prices. The
weekly COT report showed silver to have a net spec and fund long of 53,000
contracts, but that was only a minimal increase from the prior week.
PLATINUM
The bias in platinum is up, but the current trend
isn’t that impressive. Clearly platinum prices need positive guidance from Asian
demand prospects but we could see January platinum prices rise toward the late
August consolidation up at $859 to $866 before significant resistance is
encountered. The net spec and fund long in platinum is a little overextended at
2,400 contracts considering that the market is thinly traded.
COPPER
Overnight the copper market is showing signs of
breaking out to the upside again, despite the fact that Chinese copper prices
were mostly without direction this morning. However, it almost seems like the
LME copper stocks daily decline pace is ramping up again and that could
certainly fan the shortage flames. In fact, despite the lackluster trade action
in Shanghai it appears that the Press was still able to fan the tightness theme
in the headlines and that gives the bulls an added lift.
CRUDE COMPLEX
The energy complex probed up to but not through
the previous high last week but ended the week poised for even more highs in the
week ahead. Surprisingly the crude oil market has seen a decline in open
interest since early September and that could make the current pulse up a little
less dominating than the early August rally. However, with the latest US
inventory stats rekindling the bull case, concerns of even more hurricanes ahead
in the season, ongoing uncertainty in Iraq and Russia and new concerns for
Nigerian supply, the bull camp seems to be fully in charge.
NATURAL GAS
Unlike the regular energy complex, the natural gas
market seems to be weakening and continues to be short term overbought.
Furthermore, with open interest tailing off on the mid September rally, it would
not seem like the market is poised for a significant upside extension. It is
also clear that the market is lessening its concern over idled Gulf production
and that is probably because some restarts are expected later this week.