Futures Point To A Lower Open
10/18/2004
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INTEREST RATES
The Bond market comes into the week injured by
the violent upside failure last week. However, we don’t get the sense that the
fundamental outlook for the economy has improved that significantly. In fact,
when one considers the constant threat of every rising energy prices and the
mixed flow of economic readings, it is a little surprising that bonds fell back
as sharply as they did last Friday.
STOCK INDICES
The coming week promises to be an extremely
critical junction. In addition to the vulnerability created by the slide off the
October high, the market will also be confronted with an extremely heavy flow of
corporate earnings reports. Something like 180 of the S&P 500 will report
earnings this week alone and that should leave little uncertainty on the recent
condition of the marketplace.
DOW
The Dow futures have already peaked into a new low for the move overnight and it
is possible that the December Dow will reach the August lows sometime this week.
Large Cap stocks in Japan were specifically under pressure overnight off
concerns that the Japanese economy was in for a rough ride. It goes without
saying that many large companies are at even more risk to soaring energy costs,
than small companies and that undermines the Dow. We suspect that the December
Dow will see the 9,820 level before it sees 9,985.
S&P
The S&P comes into the action this week hopeful that earnings will be able to
avert attention away from the fact that the future outlook is clouded with
several problems. The S&P rarely bottoms off a consolidation pattern and it
would seem like 1102 support is merely a resting point, before even lower
pricing is seen. Even the COT report suggests that the market has more downside,
as the small specs in the S&P held nearly 24,000 longs as of last Tuesday. Near
term downside targeting in the December S&P is 1085 and possibly 1080.
FOREIGN EXCHANGE
US DOLLAR
Given the uncertain economic outlook, the too close
to call Presidential election and the negative chart setup, the Dollar enters
the week poised for even more losses. About the biggest risk to the Dollar
bears, is that the Dollar has shown surprisingly large concentrated corrective
bounces off the bottom of the trend line channel. However, the bottom of the
downtrend channel in the December Dollar comes in at 86.97 and it is possible
that the US economic report today provides a minor bounce of the bottom of the
channel, before the market resumes the downside thrust. On the other hand, the
currency markets just haven’t shown the interest in regularly scheduled US
economic reports and that could mean that the Dollar simply slides, regardless
of the news from the US.
EURO
We are not sure why the Euro is managing an upside
breakout, unless there is a speculation on long drawn out US election process.
We just don’t think that the Euro zone economy can be expected to weather a
period of ultra high energy prices, but right now the Euro is garnering enough
long interest to lift it to the highest level since February. In short, don’t
fight the trend but realize that the market might not have close in support, in
the event that a reversal is seen. Euro zone inflation readings for September
were up 0.2% and that at least argues against deflation and some traders might
take that as a supportive sign.
YEN
With the BOJ suggesting that the rate of growth in
Japan is set to slow down and hinting that oil concerns are also growing, we
have to think that the Yen is being seen as expensive at recent levels. The
bottom of the recent consolidation down at 91.00 would seem to be a logical near
term target, especially if the US outlook falters and global equity prices
slide.
SWISS
At least part of the gains in the Swiss are flight
to quality related and given the uncertain nature of ultra high oil prices, one
has to assume that the Swiss will continue to rise toward the July high above
82.00. In fact, we think the December Swiss has forged significantly higher
support of 81.00 and could touch 82.00 in the coming sessions.
BRITISH POUND
The Pound seems to be picking up spill over support
in the wake of Dollar weakness. However, it might prove difficult to push the
Pound above near term resistance of 180.10 and 180.53.
CANADIAN DOLLAR
We suspect that the correction last week puts the
Canadian in line for another pulse to new contract highs. However, in order for
the Canadian to rise sharply, the outlook for the US economy has to remain
somewhat under control. In other words, the Canadian might find it difficult to
rise sharply if there is too much concern south of its border. Assume that the
trend is up but that risk and reward to longs has worsened.
METALS
OVERNIGHT
London Gold Fix $418.50 +$.70 LME COPPER
STOCKS 87,525 metric tons -350 tons COMEX Gold stocks 5.194 ml Unchanged COMEX
Silver stocks 104.5 ml Unchanged
GOLD
While Asian gold prices might have shown some
positive signs overnight, the market is still in the process of shaking off the
massive liquidation from last week. Oil prices remain within striking distance
of contract highs and some support is being garnered from that uncertainty. The
weekly COT report showed the net spec and fund long in gold to be almost 195,000
contracts and that figure is probably understated given that gold enters the
week above the level where the COT report was measured.
SILVER
The silver market looks to be able to respect
support of $7.00 but with the net spec and fund long holding at 81,000
contracts, the market is bordering on a significantly overdone status. We still
think that silver needs progressively better economic readings, a consistent
slide in exchange stocks or solid leadership from gold in order to climb back
above the October highs. To regain the up trend channel December silver only
needs to climb above $7.185.
PLATINUM
The platinum market continues to coil in a sideways
fashion and would seem to be stalled. While the fundamentals in platinum
continue to be tight, we are not sure if they are getting progressively tighter.
Furthermore, if the market can’t foster positive sentiment on Chinese and Asian
demand, then the January contract will be lucky to hold above the bottom of the
three month old consolidation support of $824.
COPPER
The copper market has managed to recoil slightly
from the massive losses posted last week. However, the market remains injured
and vulnerable. While Chinese copper futures were higher overnight, we are not
seeing the same type of supportive information flowing from that area that was
present from July to late September.
CRUDE COMPLEX
While US crude stocks showed signs of some
rebuilding last week, the market remains concerned about the potential for a
winter heating oil shortage and the potential for the next supply problem. For
months now, the energy complex has managed to find fresh bull story after fresh
bull story and with the large early break last week, the technical condition of
the market is pretty solid. In fact, the crude oil saw a net reduction in the
spec long of almost 17,000 contracts with the small specs actually net short
22,000 contracts.
NATURAL GAS
The natural gas market continues to be a lagging
indicator for the entire energy complex but it is possible that it could become
a leading indicator. With the natural gas recently showing signs of weakness and
the Gulf of Mexico storm support fading in the rear view mirror, it is possible
that a moderate correction is in the offing. The weekly COT report showed the
net spec and fund long to be only 38,000 contracts but a failure to hold above
$8.30, could spark a round of aggressive stop loss selling.