Futures Point To A Lower Open
1/20/2005
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INTEREST RATES
The Treasury market once again flared up into new
highs and then quickly rejected those new highs. In other words, the Treasury
market in general is giving the impression that prices above 114-00 in March
bonds are expensive, with prices above 112-00 deemed to be expensive in March
Notes. The Press is reporting a new interest in long bonds over shorter
maturities and is suggesting that the renewed interest is derived from the idea
that the government is out of the issuance posture and that demand for longer
maturities is rising because of potential changes in Pension plan rules.
STOCK INDICES
The bull camp has to be mostly disappointed with
the action this week, as the initial flow of big name earnings reports should
have been enough to ignite a sustained 2-3 day rally, but instead the market
mounted a compacted rally that failed quickly. In the near term, we suspect that
prices will continue to gravitate back toward the last three months
consolidation support, but at this time we are not seeing the type of damaging
fundamental news to think that a major sell off is to be expected. We would have
expected falling energy prices to have benefited the international equity
markets overnight, but instead the focus is on other issues.
DOW
The Dow continues to be weaker on the charts than other market sectors. In fact,
the March Dow overnight fell below near term consolidation support and now only
has support off the December consolidation lows of 10,442. Certainly the
overnight low of 10,493 is initial support, but we are not sure that the numbers
or the earnings reports are capable of turning sentiment back to the upside.
Therefore, expect lightly erosive action to continue until there is a
fundamental or technical inflection point!
S&P
So far the March S&P has managed to respect the January consolidation low of
1176.50. However, in the event that 1176.50 fails to hold, the market could
track toward that 1171 low we targeting early this week. A gap down overnight
trade was partially rejected, but the odds of a large “spike down probe” seem to
have increased! As mentioned before, the market either needs a marked
improvement in the economic outlook or such a significant price decline that
investors see finally see some value!
FOREIGN EXCHANGE
US DOLLAR
At least at this early junction, the Dollar has
forged a quasi upside breakout on the charts. However, as mentioned yesterday it
is not readily apparent what the bull force driving the Dollar up is! A couple
weeks ago, the US economic numbers were tending on an impressive track, but
since that time we see the numbers to be disappointing. We also thought that US
inflation was on the rise at the same time that US interest rates were into an
entrenched rise and that might have been cause for money to flow toward the US,
but now we are not totally sure that the Fed needs to hike rates and certainly
recent inflation readings have tempered the inflation view. One might have to
concede that the near term trend in the Dollar is up, even though the
fundamentals don’t seem to justify a major trend extension on the upside. On the
other hand, news that foreign investors increased investment in the US in
November, is certainly an issue that scares the entrenched shorts in the Dollar,
especially if one concludes a continuation of that investment trend. We continue
to think that the Dollar is fundamentally capable of rising but with the pace of
numbers, we suspect that the gains will be slow and hard fought. For long term
fund and program trade watchers, the 100 day moving average is regained in the
March Dollar Index with a rise above 84.96 and that indicator is declining by
about 5 points per day!
EURO
A 100 day moving average in the Euro comes in at
128.26 today and that average is rising by 10 points per session. Dialogue from
the ECB overnight would seem to downplay the economic slowing risk to the Euro,
but apparently the market isn’t seeing any support off the cheerleading talk
from the ECB. Maybe the trade was disappointed by the ECB statement, that Euro
zone conditions are still in position for growth as that seems to suggest that
the Euro zone hasn’t achieved sustainable growth, as is already targeted by the
US Central Bank for the US economy. Near term targeting in the March Euro is
128.56.
YEN
It would seem like the poor action in the Japanese
stock market is applying some pressure to the Yen and with critical support on
the charts taken out, it is possible that the Yen falls back toward 97.00 pivot
point support on the charts. The BOJ commentary overnight made no comment on the
Yen exchange rate, but yet the Yen is under pressure as if something was noted!
SWISS
Bad technical action on the charts and almost
nothing from the fundamental slate, means that the pattern of declines remains
in control of prices. Near term downside targeting comes in at 83.82 but an
eventual target of 82.90 is possible, if the 100 day moving average is violated
at 83.82 today!
BRITISH POUND
We see the Pound benefiting from cross spread action
and from the fact that near term support is solid at 185.66. Some have suggested
that the Pound might be under some light pressure due to recent prisoner abuse
allegations, but we suspect that other issues are dominating the action. The
path of least resistance is down but we don’t see significant downside momentum.
CANADIAN DOLLAR
The Canadian approaches a critical 100 day moving
average today at 80.78 and that moving average appears to be rising by 5 ticks
per day. Trend line support is also seen down at 80.88 today and without
significant economic news from Canada expected to alter sentiment, the bears
have minimal control.
METALS
OVERNIGHT
London Gold Fix $421.70 -$2.40 LME COPPER
STOCKS 43,625 metric tons +100 tons COMEX Gold stocks 5.934 ml Unchanged COMEX
SILVER stocks 102.6 ml Unchanged
GOLD
While some in the Press think that the fund long
liquidation has run its course, we are a little concerned about the overall
setup in gold and the failure to capitalize on a couple different bullish themes
yesterday morning. In addition to a weak Dollar, there has also been stepped up
talk this week of increasing physical metals demand and for the gold market to
remain sloppy to weak into that setup has to discourage the longs. Furthermore,
with the US Dollar into an upside breakout on the charts this morning, we
suspect that liquidation pressure remains in place.
SILVER
Like gold, silver lost the potentially favorable
buzz that was present yesterday morning. At times yesterday it seemed like the
Silver was going to be lifted off the same fundamentals that have been driving
copper, zinc and lead, but in the end the low inflation and lackluster US
economic track seemed to diffuse bullish sentiment. Near term pivot point
support comes in down at $6.50 and then again at the bottom of the January
consolidation at $6.39.
PLATINUM
Surprisingly the platinum isn’t nearly as vulnerable
on the charts as gold and silver and following the reversal in the metals
yesterday morning, it wouldn’t have been surprising to see platinum under
aggressive pressure. However, we suspect that the hope for ongoing Chinese PGM
demand is underpinning platinum prices. On the other hand, as we have suggested
before the platinum market is prone to back and forth action in a wide trading
range of $870 to $840.
COPPER
While the copper market has mostly maintained a
bullish setup on the charts, we are concerned about periodic downside volatility
in this market. On the other hand, Chinese demand talk continues to circulate
and that should underpin prices. In fact, overnight Chinese copper prices were
supposedly lifted off supply fears and that usually gives the US market a
bullish bias for the day.
CRUDE COMPLEX
The energy complex faded into the delayed release
of the weekly inventory report, as the trade was expecting a moderate build in
crude stocks and a nondescript change in the distillate stocks. However, the
weekly inventory report showed significant builds in API crude and gasoline
stocks with mostly expected minimal declines in distillate stocks. While the
market might not directly reflect the bearish condition of the weekly inventory
reports, we point to the 35.1 million barrel annual surplus in crude oil, the
narrowing of the annual heating oil deficit and an expansion in the annual API
gasoline stocks surplus and negative supply developments.
NATURAL GAS
Given the patently negative spin from the weekly
inventory readings and the late Wednesday slide in energy prices, we suspect
that natural gas will remain vulnerable in the coming sessions. In fact, we
would expect March natural gas prices to slide toward the $6.00 level but could
easily slide back down to $5.81 in the event that weather in the US remains mild
and weekly storage readings fail to convincingly support the bull camp. In
short, this market should return to the vicinity of the early January
consolidation lows! In order to turn off the negative tilt in prices, the March
contract would have to mount a surprise rally above near term pivot point
resistance of $6.58.