Futures Point To A Lower Open
The Treasury market comes into the new week with
prices moderately back off of the recent highs but with what would appear to be
a much more muted outlook for inflation. After the sharp decline in PPI and
mostly muted expectations for this weeks CPI report, we would have to think that
the bulls have a slight edge, especially if March bonds are close to pivot point
support of 113-06 (March Notes support of 111-22). Early in the session today
the bull camp might get an additional lift from the Empire State Manufacturing
Index, which is expected to show a moderate decline.
While stock prices did manage to recover in the
wake of soft inflation data last week, there was certainly enough favorable
information from the Industrial production and Capacity Utilization reports to
countervail the disappointment from the auto sector last week. However, we don’t
get the sense that the stock market is that optimistic toward near term growth
prospects. In other words, the usual bullish developments are simply not
inspiring buyers to enter the stock market and that would seem to leave control
of the trend in the hands of the bear camp.
A pattern of lower highs seems to leave the Dow in a down trend pattern.
However, the net spec and fund long in the March Dow has been pared down, with
the small specs actually net short as of January 11th. Therefore, the overall
technical vulnerability of the market has been mitigated. While support is
expected to be solid at 10,500, we can’t rule out a temporary slide down to
10,464 this week. Therefore, we are still looking for a sign of a bottom, but so
far no bottoming signal has been registered.
The pattern of lower highs continues to point to lower action ahead. We suspect
that a slide below 1176.50 will be seen this week and therefore we will be
looking for a big spike down range to the vicinity of 1171, but the presence of
some 70 S&P 500 earnings reports this week, might result in sudden and rather
violent price swings!
The Dollar comes into the action this week with a
partially bullish chart setup and a mostly disappointing fundamental setup. In
other words, the Dollar just isn’t getting enough help from the fundamentals but
is showing technical signs of a bull market. For instance, we would have
expected muted inflation and weak auto sales data last week to have sparked
aggressive selling in the Dollar, but instead the Dollar rallied. In fact, in
the face of some disappointing US economic data and slightly better than
expected European data, the Dollar actually managed to rally. While the trade
might be heartened by the attempt to address the Social Security situation in
the US, we really haven’t seen that much focus on the twin deficit condition
that is supposedly the main undermine of the US Dollar. While some traders are
expecting more pressure on China to float their currency, it would not seem like
China is that close to an actual change. Therefore, while we think that the
Dollar has the potential to rally, we are not inclined to project the Dollar
above the 84.00 level, unless there is a distinct improvement in the US economy.
The Euro seemed to be poised to slide into a
downside breakout overnight, but once again the currency managed to reject the
probe down to 130.00. However, overnight Euro zone Industrial Production
declined by 0.3% in November, but that report was expected to show an even
bigger contraction. Therefore, the fundamentals seem to justify more downside in
the Euro and until there is a rise back above the critical pivot point of
131.64, we will assume that the near term trend is pointing down.
It is quite clear that the Yen is getting indirect
support from the idea that China might allow its currency to float and that
would certainly serve to lift the Yen. Even with the BOJ suggesting that they
will step in against a rising Yen, the market seems content to keep the Yen near
the upside breakout point of 98.00. Therefore, one can’t fight the apparent
uptrend in the Yen, but one can realize that the risk and reward of being long
above 98.00 is extremely unattractive.
The Swiss managed a critical downside breakout in
the early action today, but then managed to recoil back away from that level.
Near term resistance is seen at 85.38 and until something significant changes on
the fundamental front, we will assume that the trend is down.
A hotter than expected CPI reading seems to add to
the Pounds woes today. While the market appeared to reject the big downside
probe, we have to assume that the path of least resistance is down in the Pound,
unless the economic outlook for the US deteriorates significantly.
There doesn’t appear to be a clearly defined trend
in the Canadian but in the event that the March falls back below 80.86 today or
80.90 on Wednesday it is possible that the bear camp will regain control. Expect
some minor declines but for support to generally hold up.
London Gold Fix $422.55 +$0.85 LME COPPER
STOCKS 43,525 metric tons -850 tons COMEX Gold stocks 5.951 ml -193 oz COMEX
SILVER stocks 102.6 ml -606,321 oz
February gold comes into the session this morning
with thin support under the market at $420 but with the US Dollar close to a
critical upside breakout point on the charts of 83.90, one has to be a little
skeptical toward gold. From a technical perspective, the gold market looks to
remain in an overall downtrend pattern, especially with the most recent COT
report showing the small spec and Fund long to still be long 108,000 contracts.
Certainly the gold market leveled the spec long by over 37,000 contracts in the
last weekly report, but one can’t conclude that the technicals are now balanced.
The silver market would also appear to be vulnerable
with March silver operating in what seems to be two distinct ranges. The upper
range in March silver comes in at $6.60 to $6.77, while the lower range is
defined as $6.59 to $6.39. The weekly COT report showed the net spec long in
silver to be 57,000 contracts long and that was a minimal decline of 3,700
Even after Angloplats reported a sharp jump in
earnings, the shares of that company slumped and that almost mirrors the action
on the platinum chart. In other words, the platinum market can’t seem to
entrench optimism and is once again vulnerable on the charts. The weekly COT
report showed platinum to have a net spec and fund long of 2,200 contracts,
which was a minimal decline from the prior week.
Recent consolidation action suggests that copper has
lost some bullish momentum. The weekly COT report showed a mostly balanced net
spec and fund long of 25,000 contracts, but with Chinese copper lower overnight
it would seem like the bear camp has a minor edge into the US opening today.
Most traders expect physical buyers to support copper on weakness, but overnight
it seems that slightly lower action prompted sell stop action.
The energy complex surprised the trade with the
magnitude of the rally last week but in retrospect the market seemed to have
more than enough information to justify the rally. With the cold weather holding
through the weekend and various sources suggesting that OPEC production in
December declined relative to November, and the ongoing concern about Iraqi
supply, it’s not surprising that the bull camp maintains control over prices.
The market is also seeing confirmation that various OPEC members are pulling
into compliance off the January 1st production cut, with Kuwait confirming that
their production is already down by the 120,000 barrels agreed to.
While March natural gas has managed to recoil away
from the recent low, it would seem that the fund short remains fairly
significant and that could mean some fireworks in the event that prices manage
to rise above an old gap at $6.69. A more significant technical point is seen at
the 100 day moving average of $7.30 but we doubt that the market will be able to
mount that kind of rally, unless the regular energy complex aggressively extends
its recent upside action. While US temps look to moderate as the week wears on,
it would seem that the extreme cold held on a little longer than expected and
that has to give the market a little underpin.