Futures Point To A Lower Open
11/8/2004
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INTEREST RATES
The Treasury market was certainly tripped up by
the surprise gain in the monthly payroll report last Friday. Considering that
the prior months reading was also revised upward, one has to think that the bull
camp will find it difficult to regain balance into the coming FOMC meeting. We
continue to think that energy prices are set to drift lower and given the recent
stellar reading from the US unemployment report, the market will remain
vulnerable to more selling.
STOCK INDICES
The stock market is certainly overdone from a
technical perspective, but that doesn’t seem to be a major problem as we enter a
fresh week. However, with the FOMC meeting directly ahead and the sharp gain in
gold prices whipping up inflation talk, we have to think that stocks will at
least be temporarily buffeted by the Wednesday afternoon Fed meeting. It would
seem like energy prices will continue to provide some support for stock prices,
especially into Wednesday morning, when we expect more evidence of inventory
rebuilding.
DOW
The Dow has posted nothing short of a spectacular rally since the October 25th
low and given the magnitude of the recent gains, there really isn’t close-in
support on the charts. In fact, our first support in the December Dow comes in
at 10,350 and then again down at 10,327. While we doubt that the Dow will rise
directly to new highs for the year, we suspect that is in the cards in the
coming three weeks. Look to buy a correction to 10,327 into the Wednesday
afternoon FOMC decision.
S&P
The next upside target in the December S&P comes in at 1177.00, with near term
support garnered off the early 2004 high at 1163.50. With the funds net short in
the last COT report and the small spec long almost non existent at 2,285
contracts, this market might not be as overbought as some traders would have
expected after the recent rally. However, a two week rally from 1088 to 1171 is
a lot for the market to absorb without some type of setback. Traders should look
to buy the December S&P in the wake of the FOMC meeting Wednesday afternoon down
around 1158.90..
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to decline despite what should
have been considered stellar monthly non farm payroll readings last week. With
the US Fed also thought to be poised to hike interest rates and the economy
showing itself, it is nothing short of shocking that the Dollar has continued to
decline. In other words, the macro economic condition seems to be irrelevant to
the direction of the Dollar. With gold streaking higher and many starting to
talk about inflation, we are not sure how the Dollar will be able to avoid even
more losses. Even in the wake of significantly weaker oil prices, the Dollar has
shown no sign of altering its downward thrust and that must mean that the trade
is locked on the potential for a soaring US budget deficit. In our opinion,
nothing short of a massive upgrade in the outlook for the US economy, will serve
to alter the near term trend in the Dollar. About the only downside targeting
one can get from the charts, comes off the 1995 monthly low of 80.14, which is
another 380 points below the current Dollar trade.
EURO
The Euro is virtually exploding on the upside
overnight, with the currency possibly poised to reach 130 in the coming
sessions. Like the Dollar, we are not completely sure what the main driving
force of the current run is, as the European numbers don’t seem to instill a
rampant bullishness toward the Euro. Maybe the trade thinks that the US Fed is
poised to reign in growth quicker than the Euro zone and that investors will
achieve greater returns in the Euro currency. In the short term, we suspect that
even wider trading ranges are ahead and that the uptrend in the Euro will
continue.
YEN
The Japanese Yen seemed to have reached an
overbought condition this morning, but there would not seem to a reason to end
the uptrend pattern in the Yen. In fact, with oil prices remaining weak, the
outlook for the US improving, about the only concern for the bull camp is
whether or not the BOJ will become edgy about the sharp slide in the Dollar.
Near term support is seen at 94.76 and the next upside target is pegged at
96.00.
SWISS
A major upward spike overnight has left the Swiss
extensively overbought from a short term technical perspective. However, there
would seem to be a growing inflationary tilt and that could ultimately put the
Swiss in a class by itself. Therefore, expect the uptrend to continue with
support in the December Swiss pegged at 84.60.
BRITISH POUND
As mentioned in a number of other comments this
morning, the UK managed to post the hottest PPI reading since 1995 and that
would suggest a growing economy and improved pricing power. Therefore, traders
should be looking to buy corrections back to 184.93.
CANADIAN DOLLAR
There is no quit in the Canadian, as it continues to
rise without concern for the US economy. With the Canadian payroll report
showing a strong reading, we have to think that the December Canadian is poised
for a rise to 85.12 in the coming weeks.
METALS
OVERNIGHT
London Gold Fix $432.95 +$4.20 LME COPPER
STOCKS 72,400 metric tons -1,600 tons COMEX Gold stocks 5.347 ml +13,623 oz
COMEX Silver stocks 103.6 ml -99,871 0z
GOLD
The gold market traded all over the place last
Friday, but eventually settled into an extremely solid close up into 16 year
highs. However, seeing the US Dollar fall to the lowest level since November of
1995 overnight, should give the gold market an additional wave of buying
interest to start this week. Unfortunately for the bull camp, the net spec and
fund long in gold (as of last Tuesday) was 194,000 contracts and the market
comes into the session this morning trading $14 above the level where the COT
was pegged.
SILVER
The silver market did manage to make a new high for
the move overnight but doesn’t seem to have the same momentum as gold. The COT
report showed silver to have a combined fund and small spec long of 80,000
contracts, but the market comes into the action today 47 cents above the level
where the COT report was pegged. The record spec and fun long in silver is
97,000 contracts and that means that silver isn’t completely bought out yet.
PLATINUM
The platinum market continues to languish under
recent highs, as if upward momentum is being stalled. Platinum would seem to
have just as supportive of a fundamental case, as the gold market but because of
its rather lofty historical price, it is missing out on the current bull cycle.
With platinum already holding a net spec and fund long of 1,500 contracts last
week and the market now $22 above the level where the COT report was measured,
the market is trending toward a moderately overbought condition.
COPPER
Chinese copper prices were higher overnight and with
the overnight rally the December US copper market has managed to climb above the
50% retracement of the October washout. Therefore, it would seem like the up
trend continues and that December copper is poised to regain the 140 level some
time this week. Supposedly the LME copper was up on fresh buying overnight and
with stocks posting progressive declines and the macro economic condition
improving, we have to think that even more gains are ahead this week.
CRUDE COMPLEX
The energy complex rebounded Friday off a
combination of increased military action in Iraq, and escalating uncertainty
regarding Arafat and the Middle East political stability. Apparently some Saudi
Religious leaders have asked Iraqi militants to join the insurgents in a war
against US forces and that might cause a backlash in Saudi Arabia if the Saudi
government tries to quiet those adding to the tensions. With the US isolating
Fallujah and bombing heavily, most are suspecting a major offensive is underway
with the goal of capturing the insurgency leadership.
NATURAL GAS
The natural gas market came under aggressive attack
late last week and didn’t seem to get that much support from the regular energy
complex. With the COT report showing natural gas to have a small spec long
position of 39,300 contracts, it is clear that the market is overbought and
remains vulnerable from a technical perspective. Much above normal temps over
the weekend would seem to keep early winter demand talk to a minimum but later
this week plunging temps could wake up the buyers.