Futures Point To A Lower Open
5/10/2005
INTEREST RATES
The trading range in the Treasuries on Monday was
one of the tightest ranges of the last 6 months, as the market is apparently
evenly split on the forward view for the US economy. While the recent payroll
report served to balance the debate a little on the direction of the US economy,
it is clear that a number of undermines will serve to keep the bulls in partial
control of the market. For instance, the threat of slowing off ongoing high oil
prices remains an issue and with GM having trouble extracting itself from the
headlines, we can understand the desire to buy Treasuries on weakness in the
current environment.
STOCK INDICES
While the market has shown fleeting optimism,
sentiment hasn’t improved enough in the wake of favorable monthly payroll
reading, to assume that a sustained upward trend in stock prices is ahead. In
fact, the stock market has managed to keep a number of negative themes in the
headlines and that suggests the bulls will be forced to climb a wall of worry.
While Cisco earnings could provide the market with a lift after the close today,
we suspect that ongoing gains in energy prices and the lingering pessimism on
the economy in the Treasury market, will generally keep investors off balance.
DOW
The bulls will suggest that the Dow has managed to respect a pattern of higher
lows since the mid April low, but the bears will suggest that the last two
sessions have pushed the market into a profit taking posture. It appears that a
2-3 day correction is already underway but that could make lower action later
today a buy. In fact, considering that the market has effectively balanced the
technicals with a mild pullback off last week’s highs and there is the potential
for softer energy prices on Wednesday morning, aggressive traders might be
looking for a place to re-enter the long side of the market. Those that bought
three May Dow 10,100 puts should look to exit those puts on a decline to 10,344
today. Aggressive players might become a buyer of a dip to 10,346, but be aware
of the potential for follow through weakness, off the post closing earnings
reports today!
S&P
The pattern of higher lows continues to hold in the S&P but we can’t rule out a
slide to up trend channel support of 1169.70 today. In fact, given the steep
rise off the April lows, the market might need to balance the technical
condition of the market further with a decline back toward last week’s lows. In
fact, in order to definitively turn prices up, the market will need something
fresh and positive from the headlines and we are not sure that we expect to see
that type of development today. A normal retracement off the April and May
recovery would seem to allow for a slide all the way down to 1164.20, but given
the lack of scheduled news today, we are not sure that the market has the scope
for that type of break. Our pick for a low in the coming sessions is 1169.60
basis the June S&P.
FOREIGN EXCHANGE
US DOLLAR
While the Dollar has managed forge another new high
for the move overnight, we just don’t get the sense that the outlook for the US
economy is set to attract an aggressive ongoing influx of capital. Certainly the
economic disappointment in the Euro zone is providing the Dollar with spill over
buying interest, but we have to think that the Chinese currency situation will
continue to be an undermining force for the Dollar. On the other hand, the
Dollar has actually managed a bad technical trade in the early going today and
with the US economic report slate empty and oil prices showing early strength,
we suspect that the June Dollar might slide back toward critical pivot point
support down at 84.42. We have to wonder if the US Treasury auction interest
this week will yield any indication of the foreign interest in US denominated
instruments, as an influx of foreign capital off the auctions could shore up
recent gains in the Dollar. In the end, the trend in the Dollar would seem to be
up but the momentum on the move just isn’t that impressive.
EURO
While the Euro seems to have found support on the
charts, we are not sure that the fundamental view toward the Euro is markedly
improved. While many in the trade continue to voice concern for the Euro into
the late May vote on the EU constitution, the sagging Euro zone economic is
probably an even bigger limit on the Euros ability to rally in the near term.
Without clear developments from the US, we can’t rule out a bounce up into the
last two months consolidation range but we really doubt that the Euro is poised
for a sustained rise. Down trend channel resistance in the June Euro comes in at
129.60 and that might be a level to consider a fresh short sale.
YEN
Despite a clear rejection of another new low for the
move overnight, the Yen would seem to be injured technically. Weakness in the
Japanese stock market overnight would seem to leave the Yen without much in the
way of upside potential. However, as long as the market continues to toss around
the idea of a rising Chinese currency, we have to think that the Yen will
eventually see the up trend pattern return. In the near term, we can’t rule out
a slide to the late April consolidation lows down around 94.56 basis the June
contract.
SWISS
Like the Euro, the Swiss has managed a technical
bounce off critical consolidation lows of 83.00. However, other than a temporary
short covering bounce, we are not sure that the Swiss has the capacity to alter
the overall down trend pattern in place since mid April. Traders long a series
of September Swiss calls, could take short side profits again and look to reset
the short play on a bounce to 83.48.
BRITISH POUND
We suspect that the Pound reached a short term
oversold status around the lows overnight and now might be poised for a slight
bounce. However, the UK economic backdrop doesn’t appear to be capable of
turning up the current down trend pattern in the Pound. In fact, on a bounce to
188.50, aggressive traders might consider a fresh short play in the Pound. In
order to turn the trend back up in the Pound, much stronger UK numbers are
needed or the upcoming US Treasury auctions will have to be met with very dismal
interest.
CANADIAN DOLLAR
The gradual uptrend pattern continues in the
Canadian and with the US Dollar failing to rise sharply in the wake of favorable
payroll readings, the resistance above the Canadian is kept to a minimum. In
short, the June Canadian would seem to have little resistance until the 81.20
level but a close above 81.00 today, could turn a number of additional technical
signals positive.
METALS
OVERNIGHT
London Gold Fix $426.90 +$1.10 LME COPPER
STOCKS 60,350 metric tons +400 tons COMEX Gold stocks 6.084 ml oz -1 oz COMEX
SILVER stocks 104.5 Unchanged
GOLD
With the Dollar managing to forge the highest trade
since early April, the gold market could have come under more selling pressure
Monday. However, subsequent talk about the Chinese currency appreciating by
3%-5% over the coming year, served to undermine the Dollar and bring the gold
market up away from critical chart support around $425. It is certainly possible
that a rising Yuan could facilitate even more gold buying, as that would
increase the purchasing power inside China, but with most analysts expecting any
move to come very gradually, and over an extended period of time, the direct
impact on gold from the Chinese situation is probably muted.
SILVER
A pattern of higher lows seems to leave the silver
market with a minimal upward tilt, but with the Press reporting increased small
spec buying interest on the rally Monday, we are fearful of a gradual and choppy
rise ahead. Unfortunately July silver has managed the rise off the early May low
on falling volume and open interest and that isn’t exactly a vote of confidence
for the bull camp. However, the bulls would seem to have a minor amount of
control and with the recent pattern of higher highs, the July contract would
seem to have little resistance until the $7.14 level.
PLATINUM
The return of Chinese players following the extended
holiday failed to lift platinum as much as we expected, especially when one
considers that recent US economic numbers were very supportive. With trend line
support coming in today at $871 and little resistance until $881.6, we wouldn’t
be surprised to see an upside breakout but we must note that the platinum market
has managed a sizeable late in the month correction in each of the last three
months. The March break in platinum was $35, while the April washout was $23!
Aggressive traders should wait for a rise to $883 to get short the July platinum
contract.
COPPER
The copper market has seemed to have lost upside
momentum a little faster than we would have expected, following the recent sweep
of bullish information. Apparently China continues to move forward with attempts
to discourage exports of certain metals, as those exports are heavy energy users
and that could serve to increase imports in a host of metals including copper.
Overnight, Chinese copper prices closed firmer but were not particularly
definitive in their direction.
CRUDE COMPLEX
While the market continues to be confronted with
partially bearish near term supply projections, the crude oil market remained
mostly firm throughout the session Monday and then managed another patented late
surge in the afternoon action. Surprisingly the product markets are staying
relatively weak compared to crude oil, and that is especially surprising
considering that the market is anticipating another build in crude stocks on
Wednesday morning and even more importantly we are getting even closer to the
main summer gasoline demand window. However, with the trade expecting another
round of crude stock builds of roughly 1.5 million barrels on Wednesday (some
fear even bigger builds) we would not be surprised to see sharp back and forth
price action in the coming sessions.
NATURAL GAS
The natural gas market lagged behind the crude oil
market yesterday on the rally and that would suggest a residual bearishness in
the natural gas market. However, in the event that June crude manages to rise
above $52.50 we suspect that June natural gas will make a bid to get back above
consolidation resistance up at $6.75. Trend line support in June natural gas
comes in today at $6.48 but we are a little concerned about the lack of upside
momentum Monday, especially when one realizes that open interest in natural gas,
remains at a rather lofty level.