Futures Point To A Lower Open
3/29/2005
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INTEREST RATES
The conundrum continues in the Treasury market as
many players express their concern over the rising tide of inflation, while
others are concerned that the US recovery is faltering. Today’s economic numbers
will probably be a prime example of the conflict in Treasuries, as the market is
fearful of inflation, but yet the Consumer Confidence numbers might be soft. In
other words, the Treasury market could easily be under a massive liquidation
effort, if the US economy were in any way showing up strong.
STOCK INDICES
The favorable setup present in the market to
start the week yesterday, has been reversed but that optimism was apparently the
result of fleeting declines in oil prices and gains in the Dollar. This morning
oil prices are mixed, the Dollar is weaker and the expectation for US economic
reports is disappointing. In retrospect, it would seem like the recent strength
was merely short covering and technical balancing instead of a true economic
improvement.
DOW
In the near term, the bear camp would seem to control prices with little in the
way of solid support in the June Dow until the 10,450 level. However, in the
event that energy prices strengthen and the US scheduled economic numbers are
soft, it would not be surprising to see the June Dow fall to the bottom of the
November to present consolidation lows of 10,395. With AIG under political fire,
GM under Financial fire and investors disappointed with the recovery pace, we
can understand a slow grind lower in prices. In conclusion, unless there is a
headline change, one should favor the bear camp. On the other hand, a rise back
above the Friday high of 10,510 could be a technical signal that something has
changed.
S&P
Falling back below the critical pivot point at 1173.50 seems to leave the June
S&P poised for a slide to 1170.50. While it would not seem like the market is
due for panic or aggressive selling, there would not seem to be much cause for
potential buyers to get in a hurry in picking a bottom, unless there is a major
failure in energy prices, or the US economic report flow mixes up things with
some surprisingly strong economic readings. While many in the trade expect the
Friday morning monthly payroll reading to be strong, we suspect that the market
will first have to wade through some disappointing second and third tier
readings. In conclusion, the path of least resistance is pointing down, but the
downside momentum isn’t that impressive. In order to turn the short term down
trend around, the June S&P will have to manage a trade back above 1180.00.
FOREIGN EXCHANGE
US DOLLAR
The Dollar appears to have launched into a profit
taking slide with the bottom of the recent gap at least an initial target. The
gap in the June Dollar comes in at 84.16, which would not seem to be a difficult
target today, especially when one considers the expectations of a soft US
consumer confidence reading this morning. The inflation theme continues to be
the main driving force of recent Dollar gains and in order for the Dollar to
return to strength, there will have to be some cause to rekindle the inflation
story. While many bulls will attempt to look forward to the potentially
inflationary monthly US payroll report on Friday, the market will first have to
weather a string of reports that might argue against inflation. Therefore, we
suspect that the Dollar might be poised to a slide back to 83.74 but that type
of break might not materialize without weaker than expected economic readings.
We are not sure what the net effect of sharply lower energy prices would be on
the Dollar, as that might actually improve the odds of US inflation but until
the nearby crude oil falls below $53.40, we are not sure that the Dollar will
make a decisive move. In the near term, we at least expect a filling of the gap
and possibly a temporary slide to 84.00.
EURO
The Euro appears to be poised for a minor technical
bounce but getting above critical pivot point resistance of 129.83 will be
difficult unless the early US numbers are soft. While the Euro has been the
primary benefactor of investment flow from the US, we are not sure that money
will actually step in and fade the trend of the last two weeks, as Euro zone
numbers are infinitely less telling than US numbers and the threat of inflation
in the Euro zone is hardly a widely held market expectation. While we would not
be surprised to see a rise above 130 in the Euro this week, we would grow
increasingly more interested in a short play on a rise to 130.45. However, in
order to insure that the Euro remains in a downtrend the Friday morning US
payroll report will have to come in at or above the +200,000 level.
YEN
The Yen remains poised for a slide down to the
September 2004 high of 93.30, as that type of break would bring the Yen back to
a level that would allow the BOJ to take a few deep breaths. Like the Euro, the
Yen is undermined by the lack of progressive growth in its economy. Overnight
the Japanese economy posted an increase of +.2% in its monthly unemployment
reading and that shows an economy in reverse. Therefore, aggressive traders
might consider getting short the Yen on any post US Consumer Confidence bounce
to 93.87.
SWISS
The overnight bounce in the Swiss probably corrected
the short term oversold status of the currency and could now clear the way for
an extension of the March slide. However, players might have to use risks on
fresh shorts of at least 83.99. We suspect that the Swiss will see a trade on
top of 82.00 within the next 5 sessions. To throw off the down trend pattern the
June Swiss will have to mount two closes above 84.33.
BRITISH POUND
Surprisingly the Pound is showing signs of a
temporary bottom and with the Dollar in a corrective mode, it might be possible
to see the June Pound manage a rise to 187.20 in the coming sessions. The UK
will have a consumer confidence reading on Wednesday morning but in the near
term we suspect that the biggest influence on the Pound will be the weakness of
the Dollar and not the relative strength of the UK numbers.
CANADIAN DOLLAR
The June Canadian flatly rejected the slide under
the 100 day moving average and has now flashed higher on the charts. As we
suggested yesterday, the risk to those implementing fresh shorts was
unacceptable and now the market would appear to be poised to return to the
consolidation highs up around 83.45. Initial resistance comes in at 82.60 and
close in support is now seen at 82.34.
METALS
OVERNIGHT
London Gold Fix $427.00 +3.00 LME COPPER
STOCKS 44,600 metric tons -525 tons COMEX Gold stocks 5.929 ml oz -2,671 oz
COMEX SILVER stocks 101.4 ml -1.022 ml
GOLD
With the Dollar in the first meaningful correction
since March 16th we suspect that the gold market could be in for some minor
short covering and possibly even some light fresh buying. However, we are not
sure that the gold market will be able to totally reverse the recent liquidation
trend in the face of more news that the IMF is once again discussing gold sales
for debt relief. As for the Dollar, it initially seems like the Dollar is simply
backing up to fill a gap but with the scheduled report slate possibly producing
a soft US confidence reading, it would not be surprising to see the Dollar
correct rather smartly.
SILVER
Like gold, the silver market has managed to right
the ship and is poised for a temporary bounce. However, in order to evoke
widespread short covering the May silver might have to regain the $6.985 pivot
point but will need consistent outside leadership from the gold market. In fact,
in the absence of a more optimistic economic outlook, we are doubtful that
silver is going to be able to throw off the down trend pattern that has been in
place since the mid March highs.
PLATINUM
The slight recovery in gold and silver overnight
hasn’t left platinum with very favorable overnight action. In fact, the platinum
market appears to be set for a failure on the charts and a failure below $850
might make the last three months price action appear to be a major broadening
top formation. We are actually surprised that the platinum market has been able
to mostly discount the recent talk about higher Chinese interest rates and that
could be why platinum has returned to the downside breakout point on the charts.
COPPER
The copper market appears to have come out of the
recent consolidation to the upside and with the recent slide in Shanghai copper
stocks, the recovery in US equity prices yesterday and the recent slide in
energy prices, one might suggest that the bulls have cause to push prices up
within the last two months consolidation zone. In fact, with the Chinese market
overnight talking up the “shortage” theme the copper market might have the
resolve to return to the 150 level basis the May contract. While Dow Jones
suggested overnight that the Chinese market is mostly short of cathode, the mere
presence of a physical tightness is all this market needs to lift prices that at
times last week, were 800 points below the March highs.
CRUDE COMPLEX
Energy prices remained under pressure despite the
refinery problem in Texas last week and the ongoing assumption that future
supplies will be tight. We are really surprised that the energy complex didn’t
respond to the news from the Qatar Oil Minister that the 2nd production ceiling
was in fact not currently being discussed with the OPEC President. In other
words, the energy complex isn’t as bullish poised as it was for most of January
through March.
NATURAL GAS
So far the regular energy complex hasn’t displayed
enough weakness to indirectly undermine the natural gas market. However, with
some of the warmest temps of the year in the Midwest on Monday and Tuesday, we
suspect that prompt buyers are scaling back their long interest. With the
regular energy complex possibly poised to breakout to the downside into the
coming weekly inventory readings, we have to think that the natural gas market
is now vulnerable to a slide back to and possibly below the $7.00 level.