Futures Point To A Lower Open
11/9/2004
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INTEREST RATES
The Treasury market is caught between a rock and
hard place. Certainly the trade can point to a number of weak economic stats,
but at the same time the Fed seems to think that the economy is gaining traction
and therefore the recent monthly non farm payroll report is a major ongoing
impediment for the bulls. The regional Fed manufacturing readings on Monday were
unchanged and the readings today for the Richmond Fed are not expected to be
that significant.
STOCK INDICES
The upside momentum in stocks has slowed a bit,
as traders seem to be somewhat concerned about the coming Fed meeting. It is
largely expected that the Fed will move to hike interest rates and with stock
prices both short term and intermediate term overbought, there is expected to be
some back and fill. Furthermore, with widely watched Merck under more pressure
this morning due to rising legal threats (the stock made a 9 year low overnight)
it would seem like the market has an excuse to open sloppy.
DOW
Even though the December Dow has seen its upward momentum slow, it has continued
to forge higher highs and remains well below its 2004 highs. We see critical
support in the December Dow at 10,357 and lower support at 10,295. We doubt that
the lower support level will be tested unless something surprisingly negative
surfaces into the Fed decision tomorrow. Therefore traders should look to buy a
dip to 10,360.
S&P
The S&P has already forged a moderate slide off the recent high and with the
coming 36 hours of news, it might be possible for the S&P to slide back to
1160.50. However, our long side re-entry point remains at 1158.90 unless the
market falls to that level early today and then the long side entry should be
pulled down to 1157.00. In other words, traders should be sure to compensate for
a temporary negative reaction to the FOMC meeting on Wednesday.
FOREIGN EXCHANGE
US DOLLAR
The Dollar has been at least temporarily saved by an
unlikely source, a member of the ECB. With the ECB possibly hinting that recent
Dollar declines have been too extreme, many are wondering if there is a chance
of intervention. Overnight the German ZEW Index fell off sharply and the ZEW
made it clear that the export market is failing due to the unfavorable currency
exchange rate. Therefore we have at least seen some check and balance in the
Dollar slide. We suspected that the market would at least pause the slide in the
Dollar into the FOMC meeting, but in the end we don’t think that higher US rates
will turn the Dollar. On the other hand, a rising threat of slowing in economies
adversely impacted by the falling Dollar could begin to alter the trend in the
Dollar. In the short term it would not be surprising to see the Dollar bounce to
84.36 or 84.63 before making a major decision on its trend.
EURO
The November ZEW readings declined to 13.9 from 31.3
in October and that is a significant drop. As mentioned before, the dialogue
surrounding the ZEW was even more damaging for the Euro, as economists suggested
that the rising Euro was chocking off export activity and they also suggested
that the German economy wouldn’t be able to sustain positive growth in the event
that exports remains in disarray. Therefore, the Euro has encountered a
fundamental barrier to significantly higher prices. Even the ECB labeled the
recent Dollar decline as brutal and that left some traders suspecting that the
ECB might be getting closer to intervention. Therefore, the corrective potential
in the Euro would seem to allow for a slide to 128.60.
YEN
Just like the Euro, the Yen seems to be poised for a
temporary corrective slide, with support targeted at 94.40 and possibly even
down at 93.88, if the US were to post some strong numbers.
SWISS
The Swiss was recently a flight to quality
instrument and now might have to suffer a balancing of that argument. Near term
corrective support in the Swiss comes in at 84.26.
BRITISH POUND
The Pound also has a corrective posture today and
with the UK posting a significant trade deficit this morning, it would seem like
the UK has similar problems to the US economy. Near term corrective targeting in
the December Pound comes in at 184.48 and 184.20.
CANADIAN DOLLAR
Even in the face of some weak numbers Monday, the
Canadian continued to rise and that speaks of the strength of the bull case.
However, the Canadian is seeing some vulnerable technical action in the early
going today and could see a decline back to the pivot point at 83.29. The bottom
of the up trend channel in the December Canadian is 82.18.
METALS
OVERNIGHT
London Gold Fix $432.30 -$.65 LME COPPER
STOCKS 71,025 metric tons -1,375 tons COMEX Gold stocks 5.344 ml -3,087 oz COMEX
Silver stocks 103.0 ml -591,940 0z
GOLD
Overnight the Dollar has managed a slight bounce and
that could be because the Euro came under a little pressure following a surprise
decline in the German ZEW Index. The German numbers were quite surprising and
they were accompanied with by some discouraging predictions for the economy. The
ZEW actually suggested that without an improvement in German exports, there
would not be a lasting German recovery.
SILVER
Like gold, the silver market has corrected away from
the recent high but would not seem to have close-in support like gold. Near term
support in silver comes in at $7.383 and then again at $7.33. At times
yesterday, the silver and copper markets seemed to be diverging with gold but
that typically doesn’t point to a conclusively bullish setup in the metals.
PLATINUM
While the platinum market has been held back by a
pattern of lower highs it would seem like the market has now congregated just
under an upside breakout point on the charts with a quasi triple top formation.
Therefore, the market needs to manage a climb above $852.8 in order to throw off
the recent negative technical tilt. We are still a little concerned with the
relatively high historical price of platinum.
COPPER
The copper market appears to be a little overbought
and with Chinese copper prices down, we can expect at least an off balance US
session. Even though Chinese copper prices were down, the Press came away from
that session suggesting that supplies in China remain tight. Apparently the
Chinese State reserve is buying copper from the Shanghai exchange and will take
delivery under the December 2004 contract.
CRUDE COMPLEX
The energy complex traded sharply lower Monday,
tried to bounce into mid session but then closed just below the middle of the
trading range. There would seem to be plenty of Middle East tension, with the US
offensive in Fallujah, but in the most recent sessions the market hasn’t really
been supported by Middle East tensions. The market continues to be unnerved by
the fact that US crude stocks have been on the rise for nearly the last two
months, (even if some of the weekly gains were insignificant) but it isn’t clear
yet whether or not higher crude stocks will actually translate into higher
product stocks.
NATURAL GAS
While natural gas prices continue to slide in the
wake of general weakness in the regular energy complex, it is interesting to
note that Natural gas prices in terms of BTU continue to be much cheaper than
the BTU price of heating. However, the natural gas market can probably only tap
into parts of the heating oil market, due to physical use constraints. Critical
support in the January natural gas is seen at $8.00 and then again down at
$7.80.