Futures Point To A Lower Open
11/22/2004
INTEREST RATES
The Treasury market surprised the trade with an
aggressive washout last Friday. Certainly the comments from Greenspan about
foreign investors eventually rejecting US debt is a major threat, but with the
numbers recently coming in soft and the bias in the market pointing up, we
suspect that the trade will attempt to stand against a liquidation trend. We
think part of the decline in the Treasuries on Friday was a simple adjustment
from the past two week’s action, where a lower Dollar was fueling buyers into
the long side of Treasuries.
STOCK INDICES
World equity markets are moderately lower this
morning, with the residual of the weekend G20 meeting providing an additional
measure of selling. It is also damaging that crude oil prices come into the
opening this morning, $5 above the lows made last week! Late last week the stock
market was basically rocked by the statements from Greenspan, as the mere
entertainment of an international currency crisis by the Federal Reserve
Chairman is more than enough cause to put the market on the defensive. The most
discouraging thing about the Greenspan comments is that he basically said that
in the event of further declines in the Dollar, it was likely that investors
would begin to flee Dollar investments and that had a chilling effect on the
marketplace.
DOW
With a gap down move overnight it would seem like the Dow is primed to extend
the weakness late last week. Near term downside targeting comes in down at
10,400 and then again at 10,372. Unfortunately a normal retracement off the
October and November run would allow for a more significant slide to 10,246,
without even rupturing the overall uptrend pattern. Others suggest that the
December Dow will manage to hold above the early September high of 10,340 and
that breaks should still be considered buying opportunities.
S&P
While the S&P hasn’t gapped down overnight, it is pointing down with its
overnight action. Near term targeting in the December S&P comes in at the
quadruple bottom zone of 1162.60-1162.80. We suspect that the December S&P will
be able to turn off the downside action in the normal 2-3 day period.
Unfortunately, today is technically only the second day down!
FOREIGN EXCHANGE
US DOLLAR
There was no major decision or revelation from the
weekend G20 meeting but the market would seem to have taken some of the pressure
off the Dollar temporarily. However, it would seem that the Dollar will continue
to slide with some traders suggesting that a floating Yuan might give the Dollar
yet another reason to slide. Even when pressed, a number of noted analysts find
it difficult to come up with a scenario that would see the Dollar bottom
quickly. In our book, about the only thing that would bail out the Dollar would
be signs of ultra strong US economic growth. Recently US economic stats have
been anything but impressive and unless the upcoming US holiday retailing period
provides a salient lift in sentiment, we would expect the Dollar to resume the
slide in earnest. However, a number of sentiment surveys show a great number of
analysts to be almost conclusively bearish! Therefore, the market is leaning
heavily on the downside and is moderately oversold. Traders should stay with the
trend but should not be surprised to see a bounce to 83.50.
EURO
The Euro remains poised for more gains with the
market not too concerned about the anemic pace of Euro zone growth. Bottom of
the uptrend channel in the December Euro comes in at 129.53 and the top of the
uptrend channel comes in at 130.99. On the other hand, the Euro zone saw its
trade surplus knocked down from 8.6 billion euro to 3.1 billion Euro and that
could be another sign that the ultra high exchange rate is preparing to slow
Euro zone activity. In our mind, the only thing that derails the Euro rally
(besides ultra strong US growth) would be significant weakness in the Euro zone.
In the mean time, expect the uptrend to hold.
YEN
The trend in the Yen is still up but the rate of
gain has been nearly irrational. We also think that the BOJ is the most likely
Central Bank to intervene against the Dollar slide, especially since the Nikkei
has begun to slide off the threat of exchange rate adversity. The trend is up
but the risk and reward of buying today’s opening is really unattractive.
SWISS
Surprisingly there is less uncertainty and anxiety
following a G20 meeting where nothing was decided. Bottom of the uptrend channel
in the Swiss comes in today at 85.61, while the top of the uptrend channel comes
in up at 86.57.
BRITISH POUND
The Pound continues to show less upside momentum
against the Dollar than the rest of the currencies and that gives the impression
of a possible near term top. Trend line support in the December Pound comes in
at 184.49 and the top of the up trend channel is seen at 186.43.
CANADIAN DOLLAR
So much for the extremely negative technical action
late last week, as the Canadian seems to have shaken off the liquidation tilt
and now seems poised to make a run at new highs. Expect a new high but risks are
high to fresh longs.
METALS
OVERNIGHT
London Gold Fix $447.00 +$3.40 LME COPPER
STOCKS 63,950 metric tons -75 tons COMEX Gold stocks 5.357 ml -418 oz COMEX
Silver stocks 102.8 ml +79,990 oz
GOLD
Firmer prices in China failed to spur on the
Japanese trade in the early going today. With the Dollar only slightly lower and
the coming week truncated by a US holiday, we suspect that ranges might narrow
as the week progresses. The weekly COT report showed the gold to have a net spec
and fund long of just under 220,000 contracts and with the market coming into
the session today about $7 above the level where the report was measured, we
suspect that the net long is approaching 230,000 contracts.
SILVER
While silver has experienced a little lost momentum,
the overall trend is still pointing upward, especially if gold can provide some
favorable direction. The weekly COT report showed silver to have a net spec and
fund long position of 87,000 contracts and that is approaching the record long
of just under 99,000 contracts. Top of the up trend channel comes in up at
$7.835 and critical support comes in at $7.55.
PLATINUM
The platinum market continues to waffle within a
large range of trade. Even more surprisingly, is the fact that copper prices
have generally shown ongoing strength off solid Chinese demand expectation, but
recently platinum hasn’t seen the same type of spillover interest. The weekly
COT report shows platinum to have an overly large net spec long of 4,200
contracts for a thinly traded market.
COPPER
After a rather stellar run up last week, the copper
market is showing some profit taking action this morning. We suspect that part
of the weakness is due to statements from an industry source that current copper
prices are unsustainable. Countering the over valuation talk is news of an
Australian copper buyout bid.
CRUDE COMPLEX
Energy prices are higher out of the box this
morning off reports that October Chinese imports rose 33% due to drought (lower
hydroelectric output in Southern China). That joins a combination of other
developments that conspired to send prices rocketing back up last Friday, but
the most important development were suggestions from OPEC that they might be
poised for a production cut. In fact, Venezuela indicated during the action
Friday that they would vote for a production cutback.
NATURAL GAS
The natural gas market saw its tilt shift in the
wake of the recovery in crude and heating oil prices last week. With alternative
prices rising, that gives natural gas the ability to attempt a climb back toward
$8.00. Unfortunately, the natural gas still showed a rather burdensome small
spec long position of 36,000 contracts in the last COT report and that might
make it difficult to rally.