Futures Point To A Lower Open
10/20/2004
INTEREST RATES
After a series of sloppy days trade, the bond
market seemed to weaken enough on Tuesday to effectively balance its technical
condition. In other words, the Treasury market seems to have found moderately
solid support around the lows this week and now would appears poised to test the
old high. While the economic report slate is empty today, it would seem that the
market is finding enough speculative buying interest to lift prices.
STOCK INDICES
The bulls seemed to have a good collection of
factors coming into the opening Tuesday, but the market failed to maintain the
good feeling generated by IBM and the recent softening of energy prices. Some
might suggest that even more declines in energy prices are needed to reduce the
slowing effect, while others suggest that only lower energy prices over a period
of weeks will alleviate the pressure on the economy. It is a little concerning
that the US Dollar continues to decline and that US Treasuries are rising toward
their recent highs, as that insinuates concern for the US economy.
DOW
The charts in the December Dow look extremely negative and given the failed
action overnight, we now expect prices to fall to 9,800. Since the near term
report slate offers little to change the current track, we have to give the bear
camp full control. Watch for the weekly energy inventory readings and if they
don’t result in sharply lower energy prices, expect the Dow to fall for at least
another two sessions.
S&P
A trade below the recent consolidation lows seems to set the market up for a
bigger slide. In fact, now that the near term short covering tilt is past, we
would wait for a big range down probe and reversal before dropping the bearish
view. Near term downside targeting comes in at 1095 and then again down at 1086.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to slide to new low ground and
is doing so off a combination of ideas. Many traders think that the soaring
trade deficit and a possible disinvestment pattern is causing the Dollar to
slide, while others think that the US Fed’s desire to hike rates in the face of
weak economics is cause for the weakness. However, the Canadian Dollar seems to
have managed to recover, despite a move in that country to hike interest rates.
Others think that the closeness of the election is driving the Dollar down,
while others think that the US remains more vulnerable to its own domestic
energy shortage. In short, there is no shortage of reasons why the Dollar should
slide and very few reasons to suggest that the Dollar is a buy. Even the report
slate fails to offer any counter to the selling. Lastly, it would seem that US
corporate earnings reports and US equity market action has turned sour and that
simply brings in another source of selling. Near term downside targeting in the
Dollar comes off the weekly chart down at 85.00.
EURO
In the Euro it would seem that all of the Dollar
faults are reason to buy the Euro. About the only positive we have seen from the
economic front in the Euro zone, is the fact that Italy saw its August
Industrial sales increase by 2.9% on the year. Near term weekly targeting on the
Euro is 126.23.
YEN
Like the Euro, the Yen continues to win by default
and despite the fact that Japanese exporter stocks were under pressure due to
the sharp Dollar slide, we are very surprised that the Yen has managed an upside
breakout on the charts. Near term targeting off the weekly Yen chart comes in at
92.96.
SWISS
While we aren’t seeing the specific cause of flight
to quality buying, the significant downside breakout in the Dollar by nature,
insinuates the need for a flight to quality premium. Given the overnight action
we have to think that the December Swiss will make quick work of tracking up
through the old high at 82.16 in the coming sessions.
BRITISH POUND
The Pound is not lost in the wake of the other
upside currency breakouts and with the pulse up overnight, the next upside
targeting becomes 180.53. It would seem that economics have very little to do
with the current trend in prices.
CANADIAN DOLLAR
Even in the face of a rate hike the Canadian has
righted the ship and now looks intent to soar toward the next level. To find
anything in the way of resistance on the charts, one has to go the monthly chart
and go back to the mid 1992 highs of 80.60.
METALS
OVERNIGHT
London Gold Fix $421.70 +$5.45 LME COPPER
STOCKS 84,725 metric tons -2,175 tons COMEX Gold stocks 5.263 ml +5,409 oz COMEX
Silver stocks 105.0 ml +523,212 oz
GOLD
The gold market certainly looks like it’s poised to
retest the October high with the probe up overnight. Certainly seeing the US
Dollar slide provides the market with an added lift but we also have to think
that the market is getting a little help from other factors. In fact, recent
strength in US equity prices, renewed concern over the US twin deficits of trade
and budget and periodic inflationary talk are probably adding to the bull track
in gold and that broadens out the bull case.
SILVER
The silver market has also mounted an upside
breakout or a new high for the move overnight. Near term resistance comes in at
the October high of $7.34. The top of the channel in the December silver comes
in today at $7.409.
PLATINUM
The coiling pattern in the January platinum looks to
be coming to a head. The January platinum has been coiling since late July and
in order to see an upside breakout, the market might have to come away with a
much improved macro economic outlook than is currently present. Therefore, the
odds of a downside washout are currently a little higher than for an upside
breakout.
COPPER
The copper market failed to react as strongly as one
would have expected early this week following news of a strike in Mexico.
Overnight Chinese copper prices were weaker, while Rio Tinto reported strong
overall 3rd quarter mining output, the Grasberg copper output for the quarter
was down sharply and therefore the market is understandably conflicted. We are
really surprised that the expanding instances of strikes, haven’t been viewed
more positively by the market but we have to think that the market is certainly
being put off by the uncertain nature of the forward looking economic outlook.
CRUDE COMPLEX
While we are not calling for a major top in
energy prices, we do think that the coming two sessions could bring about the
biggest downside correction since the August washout of nearly $7.00 in crude
oil. The fact that the energy complex continues to show signs of weakness,
despite developments that could have provided support to prices, shows at least
a temporary change of sentiment. Over most of the last 6 months, the energy
market has managed to rally off almost anything bullish.
NATURAL GAS
In looking at the recent action in crude oil, one
would think that a correction is in order for natural gas. However, the natural
gas market streaked to new highs even in the face of a significant downdraft in
crude oil. Apparently the natural gas market is thrusting higher off the
expectation of cold weather and an early start to the heating season.