Futures Point To A Lower Open
1/11/2005
INTEREST RATES
The Treasury market continues to be an extremely
difficult market to call as the trade is evenly divided and the charts clearly
show a market that is still mired in a sideways consolidation. While some
players would suggest that the consolidation has tracked slightly higher since
the September time frame, others would suggest that since the December high,
Treasury prices have been mostly tilted downward. From the economic front, it
would seem like the Fed is convinced that the US economy is entrenched in a
recovery mode, but at the same time the Fed yesterday seemed to play down the
existing expectation that a series of rate hikes are in the cards.
STOCK INDICES
As we have been saying for almost a week, the
equity market doesn’t tend to behave very well when confronted with a
consolidation pattern on the charts. Yesterday afternoon it seemed like the
market was going to manage an upside breakout above the recent consolidation,
but this morning that move has been almost totally reversed. While the Nikkei
was stronger overnight, that positive action failed to extend into the European
action.
DOW
The March Dow appears to be falling back toward consolidation support of
10,600-10,587. The recent COT report showed that the Dow futures are still
vulnerable to fund and small spec selling, especially in the event that critical
support is violated on the charts today. Rising oil prices have seemingly
undermined the Dow versus other sectors of the market, but we suspect that the
pressure on the Dow from energy prices will reverse into the weekly inventory
reports on Wednesday morning. In the mean time, we don’t see the need to bust
prices out to the downside and to see that type of action might take a patently
disappointing earnings report.
S&P
The S&P seems to have a slight upward tilt on the charts, especially when one
notes that the market has forged a pattern of higher lows. On the other hand, it
would not be a positive for the March S&P to fall back below a close-in trend
line of 1187.80 today. Forced into the market, we would wait for a correction
back to 1183.60 to get long, but traders that buy at that level, probably have
to risk the position to at least 1178.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to slide back off its recent
highs and with each passing day, the recent 5 day rally in the Dollar is being
downplayed. It seems that the US Treasury Secretary failed to offer up dialogue
that would support the Dollar and it is also clear from the recent US economic
reports that the US economy is failing to support the Dollar. In fact, in
addition to the slack economic dialogue and the lack of substantive dialogue
from the US Treasury, the Dollar might also have been undermined by suggestions
from a US Fed member on Monday, that persistently higher US interest rate moves
weren’t a given! Therefore, we can understand the corrective action in the
Dollar and without some really solid US earnings information we wouldn’t be
surprised to see the March Dollar index fall back to 82.51.
EURO
Given that the Euro was extensively oversold, it
won’t be surprising to see the March Euro return to the 132.90 level in the
coming sessions, but the Euro looks to have lost its dominating leadership role
in the currency markets. Adding into the positive tilt in the Euro, are
indications from the German ZEW report that expectations in January improved
significantly when compared to the December readings. In fact, the German ZEW
index for December came in sharply higher at 26.9 and that is quite a jump from
the prior reading of 14.4. In other words, the euro has short term technical
capacity to rally and is also getting help from the numbers!
YEN
The Yen seems to be poised for an upside breakout on
the charts and is being lifted by a solid gain in the Nikkei overnight. However,
the market appeared to mostly discount a moderately large decline in consumer
confidence, as that reading dropped to 30.0 from 44.4. Near term upside
targeting in the Yen comes in at 97.10, but we are not suggesting that a long
term uptrend is in the cards for the yen.
SWISS
Like the Euro, the Swiss deserves a short term
technical bounce and given the steepness of the slide off the December high, one
should not be surprised with the magnitude of the bounce. Near term targeting
comes in at 85.98 and we will not reverse our overall bearish view toward the
Swiss until the market has managed to close above 86.15.
BRITISH POUND
The Pound has shown little of the recovery bounce
action that is being seen in the Euro and the Swiss and with a heavy layer of
chart resistance at 188.20, the Pound might simply consolidate. Aggressive
traders should still look to sell the March Pound on a rise to 187.90.
CANADIAN DOLLAR
The Canadian might have the technical and
fundamental capacity to rise to 83.26. With the housing readings from Canada
even more impressive than the recent employment news, one might suggest that the
Canadian has the best near term economic look. Therefore, traders should expect
the market to post several more days of upside gains.
METALS
OVERNIGHT
London Gold Fix $422.55 +$1.30 LME COPPER
STOCKS 47,975 metric tons -275 tons COMEX Gold stocks 5.864 ml Unchanged COMEX
SILVER stocks 102.8 ml Unchanged
GOLD
The gold market appears to have come alive and with
the Dollar showing a second day of weakness, the buyers might be justified. We
suspect that gold will get an addition lift in the event that the March Dollar
manages a slide below 82.84 but with the Dollar already falling below the
psychological even number level of 83.00, it is clear that the session today is
going to start out on a moderately positive note. Chinese gold prices were
higher overnight and it would appear that gold stock news is also contributing
to the bullish psychology, as more buyout and merger dialogue is being seen.
SILVER
With the gold market providing solid leadership this
morning, the silver market has climbed toward the consolidation highs, which are
located up at $6.59. However, the $6.59 to $6.62 zone seems to be a no-mans land
on the charts and it could take strong gold leadership to pull silver buyers
into the market. Unfortunately the silver market just isn’t seeing a favorable
enough macro economic look to be lifted by physical demand fundamentals and
therefore it is mostly resigned to tracking the gold market.
PLATINUM
The London platinum fix was up moderately again and
that should leave the market with a positive bias. However, the platinum market
seems to have a pattern of running out of momentum quickly and reversing
direction. In order to respect the pattern of lower highs (and maintain a
downtrend pattern) the April platinum would have to remain below the $875 high
level, but a closer-in down trend line offers up resistance at $870 today and at
$868.4 on Friday.
COPPER
The Chinese copper market was higher overnight and
London copper managed to rise up through a couple resistance points on the
charts and that should give the US market a strong start. Apparently the macro
economic look isn’t limiting copper prices, but we suspect that more talk of
tightness in the Asian market is what inspired the market to breakout to the
upside overnight. While exchange stock declines continue, the rate of decline is
almost insignificant.
CRUDE COMPLEX
We have to think that the energy complex not only
reached a 5 day overbought condition at the highs Monday but that prices also
overreacted within the session Monday to the bullish information that was
presented yesterday. Certainly seeing sub zero temperature potential for Friday,
Saturday and Sunday is supportive and certainly seeing Norwegian oil production
suffer a 140,000 barrel per day setback is also supportive, but we don’t think
that the market deserved to ramp up prices so excessively yesterday. In fact,
when one considers that March crude oil was almost $6.00 above the December 28th
low, into the highs on Monday, and managed those gains in the face of mostly
mild weather, patently bearish weekly US inventory reports and a lack of
definitive action by OPEC, the recent rally appears almost irrational.
NATURAL GAS
Like the regular energy complex, the natural gas
market got ahead of itself on Monday. However, natural gas was significantly
oversold from a 2 week perspective and with the low temps into the coming
weekend reaching well into sub zero levels, we can understand the desire on the
part of some fund shorts to level their positions. We see an extremely critical
pivot point in March natural gas at the September low of $6.25 and that declines
back to $6.18 might be considered a long entry point for aggressive traders.