Futures Point To A Lower Open
10/28/2004
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INTEREST RATES
The sharp decline in oil prices alleviates some
of the concern on the economy and that in turn puts some pressure on Treasury
prices. While a single days correction in oil futures prices won’t translate
into lower consumer energy prices, it is a start and it is something that could
put off would-be buyers. Given the sharp slide in energy prices and the sharp
rise in equity prices, the Fed Beige book was mostly discounted.
STOCK INDICES
What a difference a couple days can make, as
Monday morning the fortune of the equity market was nothing short of dismal and
now some of the clouds are lifting. Certainly crude oil prices above $51.00 are
still a significant burden to the world economy, but in the event that early
weakness in energy prices extends that should prompt aggressive speculative
buying in equities. Overnight the Japanese stock market rose sharply and that
should help to foster a positive opening in the US.
DOW
Since the Dow seemed to lead on the downside, it might now show more aggressive
short covering and maybe even more intense fresh buying than will be seen in
other sectors. However, while one should attempt to ride the rise in prices, it
will be very important to see energy prices follow through on the downside. In
order to keep sentiment toward the equity market positive, we think December
crude oil will have to remain below $52.50. Near term upside targeting is seen
up at 10,153.
S&P
Near term upside targeting comes in at 1132.30 and near term support comes in at
1120.20. In our opinion, the S&P must manage a climb above that 1132.30 level to
really reverse the technical pattern. The S&P might be like a spoiled child, it
might need consistent declines in energies just to keep the bullish buzz
flowing.
FOREIGN EXCHANGE
US DOLLAR
The short covering in the Dollar continues and with
oil prices extending the downside, it is clear that the outlook for the US
economy is improving slightly. Also fueling the rally in the Dollar is an
extensive oversold technical condition following a massive October slide. Just
seeing a normal retracement off the October slide would allow a bounce to 86.35
without even altering the down trend pattern in the Dollar. As long as oil
prices slide and US equity prices rise, we doubt that the economic readings will
even be a consideration to the markets. Near term resistance in the December
Dollar comes in today at 85.94 and then not until 86.25. Since the market went
down on emotion we suspect that it could rally on emotion, as the economic
condition in the US isn’t changed dramatically from just a few days ago.
EURO
The Euro has already filled a massive gap left by
the wild upside action early in the week. Overnight the Euro zone posted a
significant increase in money supply growth and also saw a strong pulse up in
Spanish inflation and that could fuel concerns of rising interest rates in
Europe. In the recent past, the Euro rallied because the US economy was slow and
in a posture to hike interest rates and now that same condition might be facing
the Euro zones. In other words, at least part of the fundamental condition has
shifted. Near term downside targeting is seen at 125.84.
YEN
So far, the yen hasn’t come under the same type of
reversal action as is being seen in the Euro and that is even more surprising
under the news that China moved to hike interest rates. However, the Japanese
Yen is significantly influenced by the hope that the US economy is going to
improve its outlook. Therefore, the Yen will have some weakness but might be
able to hold up around 93.47.
SWISS
The Swiss has already seen a massive downside
adjustment and has effectively filled the gap left early in the week. However,
the Swiss did manage a bounce off the bottom of the gap and that could be
because some longs are holding out for a recovery in energy prices. Therefore,
those looking for a short might sell the Swiss bounce and hope that energy
prices continue to fall.
BRITISH POUND
The Pound is undermined and is possibly headed to
180.00 under the current liquidation washout.
CANADIAN DOLLAR
Even though the Canadian might have the eventual
capacity to shake off the selling, it can’t escape the fact that it is
extensively overbought and therefore vulnerable to a shift in sentiment. Near
term downside targeting is seen at the trend line of 79.99.
METALS
OVERNIGHT
London Gold Fix $423.85 -$2.00 LME COPPER
STOCKS 79,750 metric tons -400 tons COMEX Gold stocks 5.318 ml +3,183 oz COMEX
Silver stocks 105.0 ml -45,296 oz
GOLD
While the Dollar isn’t higher overnight, oil prices
have declined and that keeps gold under a slight bit of pressure. Also adding
significant pressure to gold prices this morning was a surprise Chinese interest
rate hike. To add to the liquidative tone, Gold Fields posted a disappointing
1st quarter earnings report.
SILVER
With gold under minor pressure and the macro
economic view improving, it is possible that a short term liquidation pattern
settles into silver. Near term downside targeting is seen at $7.036 but the
market might see some initial support coming in at $7.15. About the only
positive for the metals markets today, is the fact that Spanish inflation
readings for October were sharply higher as they rose 3.5% from the same time
last year.
PLATINUM
Since platinum was already in a weak chart posture,
before the recent weakening in gold, it should remain under pressure. However,
platinum and copper have recently seen some weakness off the mounting threat of
slower global activity and with sharply lower oil prices, the outlook for the
economy could improve. Therefore, platinum is probably poised to slide but we
are now a little more confident that lower support of $828 or $823 will be able
to hold prices up.
COPPER
The copper market remains mired in the consolidation
and would seem to have a slightly negative bias but with softer oil prices and a
stronger global equity market action, copper should see its support firm up a
little. However, in the near term there is the potential for a moderate slide in
prices, as the Chinese central bank moved to hike interest rates this morning.
Giving the bears an additional edge overnight were more reports of increased
production at Antofagasta in the 3rd quarter.
CRUDE COMPLEX
The market finally encountered a sweeping
reversal and this time it would seem that some players are thinking that the
weakness could extend. Certainly seeing crude stocks rise in excess of 5 million
barrels at the API caught the market overbought and with the additional rise in
gasoline stocks we can understand prices recoiling sharply. It is also bearish
that the API pegged crude oil imports to have risen by 711,000 barrels per day
and have now pulled within striking distance of 11 million barrels per day.
NATURAL GAS
The natural gas market came under intense pressure
and it could be expected to outpace crude on the downside in the near term. In
other words, natural gas dramatically outperformed crude oil over the past week
and now the liquidation sweep has probably caught a large number of spec longs.
Apparently an expiration is fostered intense liquidation in natural gas, but if
the weakness continues in the action today, there is clearly something more than
a simple technical adjustment taking place.