Futures Point To A Lower Open
4/27/2005
Â
INTEREST RATES
The Treasury market was certainly undermined by
the record new home sales reading on Tuesday. However, since the stronger than
expected economic readings from the US have been mixed in with a fair measure of
soft readings, the Treasury market has been forced to simply balance an overly
pessimistic economic outlook. We continue to think that the Treasury market
remains moderately net short in the spec categories within the COT analysis and
that should mitigate near term selling volumes a bit.
STOCK INDICES
The stock market failed to hold the new high for
the move posted on Tuesday and with Amazon results overnight undermining
sentiment in the early going today, the market should start out on a negative
footing. With the trade generally expecting favorable earnings from Verizon and
Exxon Mobile today and the markets also expecting to see a minor up tick in US
durable goods, we suspect that the market will manage to hold close-in support
on the charts. On the other hand, the market is somewhat disappointed with the
performance of the tech sector (in the first quarter earnings flow) and with
Lexmark producing some negative headlines this morning there is certainly the
potential for a slide back toward the April consolidation lows.
DOW
So far this week, the Dow has forged a pattern of lower highs and as suggested
before the sharp compacted rally off the April lows last week leaves the market
without much in the way of near term chart support. Therefore, while we see
slightly supportive fundamental prospects this morning, we can’t rule out a
technical slide to 10,137. However, we do want to note that the attempt to
extend gains above the April 21st high, were accompanied by sharply falling
volume and open interest readings and that suggests the buying impetus was
basically shut down around the recent highs. In our opinion, the durable goods
report this morning might end up being supportive, but we still can’t rule out a
further slide back down to the last two weeks consolidation lows. To turn
positive toward the market, the June Dow would have to manage a rise back above
10,187 off the early numbers.
S&P
There is little support on the charts until 1146.60 but we don’t get the sense
that the market is poised to fall aggressively. In fact, another favorable
regularly scheduled US economic report today, could continue shoring up the
forward view. Unfortunately the forward view on the economy is coming from an
extremely discouraged level and is simply not impressive enough to pay up for
stocks so much above the last two weeks consolidation lows! In other words,
conservative traders should wait for a decline to 1143.20 before getting long,
even if that means missing a temporary return to levels up around 1161.50. To be
long the June S&P, we suspect that a risk of at least 1136.80 is necessary and
therefore it makes sense to wait for more declines before picking a bottom.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to waffle without a clear cut
focus. Certainly seeing US numbers improve would seem to justify the slight
recovery off the April lows, but we are not sure that macro economic
differentials are that important to the daily ebb and flow of prices. With the
US Treasury Secretary giving a speech around mid session today, we suspect that
the market could be confronted with more calls for a floating Chinese currency.
However, without a market moving development from the Chinese currency Float
side issue, we are not sure that the market will move to factor in a significant
change in the value of the Dollar. While we doubt that the Dollar is tracking
the macro economic or interest rate differential themes that closely, the
recently improved economic report flow from the US is certainly providing some
lift to the Dollar. However, some suggest that recent gains in the Dollar have
come mostly from short covering, but as the June Dollar approaches the underside
of the early April consolidation, we suspect that resistance will limit the
Greenback quickly. Unfortunately, slightly higher action today serves to put the
Dollar almost in the dead center of the April trading range. Pushed into the
market, we see a minor upward bias but there currently doesn’t appear to be a
defined trend.
EURO
While the Press is floating an expanding money
supply in the Euro zone, the stimulative impact of the money supply readings is
apparently lost on the Euro. Like the Dollar, the June Euro is falling toward
the middle of the April consolidation and is mostly without a consensus theme.
The EU is apparently warning members, that have low oil inventories, but that
situation seems to be a universal problem and shouldn’t be something that
undermines the Euro in the near term. However, given the expectations for US
reports this morning, the recent downward tilt on the Euro chart and the lack of
a fresh fundamental theme, the path of least resistance in the Euro is down.
Initial support and short term targeting in the June Euro comes in at 128.99 and
the bottom of the near term consolidation zone is still seen at 128.41.
YEN
While we continue to see the Yen as a surrogate for
the Chinese currency, we also think that the recent rally in the Yen has left
the market extremely overbought and vulnerable to some near term selling.
Favorable earnings results for Nippon Steel could partially discourage
aggressive selling in the Yen and we suspect that aggressive traders could buy
the Yen on a decline to 94.33. In order to send the Yen shooting back toward the
recent highs, the US Treasury Secretary will have to directly address the
Chinese currency situation in his remarks around mid session today.
SWISS
Given a big range down overnight, the June Swiss
seems to be headed toward the early April consolidation down around 83.10.
Flight to quality concerns have declined due to a recent improvement in US
economic numbers and also because oil prices have shown decreased volatility and
the net result of the calmer global condition is typically light long
liquidation selling in the Swiss. Hold the recently suggested short Sept
futures/long multiple September Swiss call position, looking for more gains in
the short futures position, before banking profits on the futures.
BRITISH POUND
A pattern of lower lows confirms an ongoing profit
taking posture in the Pound. With the UK suggesting that overly tight oil stocks
have been repaired the EU warning today is taken with a grain of salt. The June
Pound would run into the 50 day moving average with a slide down to 189.27 today
and that could be a buy point for aggressive players.
CANADIAN DOLLAR
The Canadian sits right on extremely critical long
term consolidation support this morning! However, a major failure might not take
place until the June falls below the early February low of 79.52. Instead of
picking a bottom with long futures, aggressive traders should consider limiting
risk with a long June Canadian 81 call for 60 ticks.
METALS
OVERNIGHT
London Gold Fix $434.10 -.60 LME COPPER
STOCKS 60,025 metric tons -50 tons COMEX Gold stocks 6.046 ml oz +59,053 oz
COMEX SILVER stocks 103.5 ml +139 oz
GOLD
While Asian gold prices managed yet another higher
high before coming under profit taking pressure, the US gold market failed to
make a new high and has completely given back the prior day’s gains in the early
trade today. With the US Dollar now marking the third straight day of gains off
the recent low, we can understand the change of heart in the gold market. Over
the last two sessions, gold was showing divergence with the rest of the metals
markets and it appeared as if gold had broken the pattern of tight correlation
with the greenback.
SILVER
The silver market, which has basically been
consolidating over the last five sessions, has now decisively moved below the 50
day moving average in the early going today. However, July silver did manage to
respect support at the $7.235 level and unlike gold did manage to see a slight
rise in volume and open interest off the April rally. Unfortunately, trend line
support in July silver comes in all the way down at $7.05, with the top of the
March through April uptrend channel coming in up at $7.432.
PLATINUM
After another new high for the move on Tuesday, the
platinum market has forged an aggressive range down trade in the early going
today. Hopefully traders were able to sell July platinum at $875 on our
recommendation early this week but with initial support seen at $870, we suspect
that the market will quickly slow the overnight selling pressure. It is possible
that some Asian traders simply decided to bank profits ahead of some holidays
next week, and it’s also possible that the proximity to all time highs prompted
some longs to bank profits.
COPPER
The copper market posted some dismal action this
week despite the fact that US economic outlook has improved. However, the market
is talking up the idea that supply tightness is alleviating. The Chinese market
saw aggressive selling partly off the overnight rise in the Dollar and possibly
in anticipation of coming holiday closures.
CRUDE COMPLEX
The typical pattern unfolded again Tuesday in the
energy complex, with prices forging significant early and mid day declines and
then seeing prices recover in the afternoon action. We suspect that private
projections targeting OPEC April output at 30.4 million barrels pressured
prices. We also think that fresh production promises from several OPEC members
facilitated the decline in prices.
NATURAL GAS
Like the crude oil market, the natural gas market
slid lower on Tuesday but then came running back in the late afternoon action.
The weather is becoming less of an issue but with the macro economic outlook
also improving, the impact from the demand front is simply left unchanged. We
have seen open interest tail off a little and that could be a sign that natural
gas is losing its bullish resolve and is therefore going to become even more
reliant on the direction of crude oil.