Futures Point To A Mixed Open
8/25/2004
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INTEREST RATES
The Treasury market continues to waffle and has a
slightly weakened tone. However, economic numbers continue to confirm an
extension of the temporary soft patch that the Fed has acknowledged. While the
Fed’s recent mitigation of the energy impact on the US economy has robbed the
Treasury market of potential buying interest, there still seems to be a solid
measure of support just under current price levels.
STOCK INDICES
While the stock market might be showing signs of
lost bullish momentum, prices have managed to remain close to the recent highs.
With the Press noting typically thin summer trading volume, we have to narrow
our expectation for near term price action. In the near term, we continue to
think that energy prices are coming to a major crossroads and that the excess
premium in crude prices might be set to contract.
DOW
With the September Dow bordering on an upside chart breakout, it would seem that
the blue Chips stocks remain in favor. However, in order to breakout and run to
the upside, the stock market will need outside help. Pushed into the market we
would be long on minor breaks.
S&P
Moderate resistance is seen just above the current market at 1101 to 1103 in the
September S&P. The bulls still seem to have control but that control is a
fleeting posture. In fact, seeing the September S&P fall back below 1096.20
could be enough to spark a moderate failure. Like the Dow, the S&P needs sharply
lower energy prices to spark an upward wave in prices.
FOREIGN EXCHANGE
US DOLLAR
The Dollar continues to surprise with a rally that
appears to be defying gravity. We suspect that the Dollar saw some support from
Greenspan dialogue yesterday, as the Fed Chairman suggested that the Japanese
economy might have trouble recovering in the face of soaring energy prices. Some
traders and economists suggest that the US economy is also as exposed to energy
prices as the Japanese economy. In the near term, the US looks to get a slightly
supportive durable goods reading but that reading should be quickly offset by a
soft home sales reading. It is also possible that the situation in Najf is
coming to a conclusion and that could also support the Dollar. However, seeing
sharply lower energy prices could have a temporary adverse impact on the Dollar,
as many other currencies have been negatively impacted by energy price action.
Therefore, the path of least resistance in the Dollar is generally pointing up,
but once the market reaches the late July and early August consolidation we
could begin to see resistance to further gains. Near term support is pegged at
89.35, while near term resistance is seen at 89.59.
EURO
The pattern of lower lows continues and we are not
sure that the Euro will be able to avoid a slide down to the late July
consolidation, unless the US stumbles badly. It would seem that the Euro is
getting some light buying interest ahead of the US numbers today and that means
that a stronger than expected Durable goods report would serve to drive the Euro
down quickly. The odds are not real high that US durable goods will come in
strong!
YEN
With the US Fed Chairman specifically pointing out a
vulnerability to high energy prices, the Yen remains under pressure in the short
term. The September Yen would seem to be headed down to the moving average line
at 90.51 and could even extend the slide down to 90.00, if US numbers are strong
and energy prices soar off tight US weekly inventory readings. Tempering the
downside action in the Yen are big gains overnight in the Nikkei.
SWISS
While the Swiss might appear to have decent support
at 78.45 we still think that the currency is headed down to the July and August
consolidation just above 78.00.
BRITISH POUND
Ultra high open interest in the Pound could suggest
that the recent washout has run its course and that the Pound is a buy below
179.45. We see no reason for the Pound to continue to track down toward the
April and May consolidation lows. Therefore, traders should look to be buyers of
minor weakness today.
CANADIAN DOLLAR
Talk yesterday from the BOC that growth in the 2nd
quarter might be closer to 5% than to 4% certainly gives the Canadian strong
support on the charts. However, the market does seem to be bit vulnerable this
morning and that could mean an opportunity to buy a break! In fact, on a break
to 76.34 traders should get long the Canadian risking the position to 76.10.
METALS
OVERNIGHT
London Gold Fix $405.50 -$1.40 LME COPPER
STOCKS 109,050 mt tons -600 tonnes COMEX Gold stocks 4.788 ml +8,406 oz COMEX
Silver stocks 109.5 ml -580,112 oz
GOLD
While the gold market indicates that the higher
overnight action is a response to higher energy prices and the subsequent
inflation threat but that correlation hasn’t been strong lately. With the Dollar
moderately off its recent high we suspect that gold will see some short covering
but unless the Russian airline situation or the fighting in Iraq yields some
flight to quality incentive, we doubt that gold will mount a significant upward
thrust. While gold might act like it benefits from higher energy prices, but we
have to think that soaring energy prices raise the deflation potential and that
keeps the gold from achieving long term gains.
SILVER
The failure in silver this week only partially
undermines the market. However, if the September contract is unable to regain
the moving average at $664.6 the bears look to retain a slight bit of control
over near term prices. The fund trade continues to be the overwhelming driving
force in the silver market and with open interest in silver markedly below the
high levels seen into the March and April top, it would seem that this market
retains buying capacity.
PLATINUM
It would seem like the platinum market aggressively
recoiled away from the recent lows and since those lows coincided the moving
average that could be seen as solid support. However, the ebb and flow of
Chinese interest in copper and platinum isn’t totally supportive of platinum
this morning, as copper prices have remained weak. Near term upside targeting in
Oct platinum comes in at $869.
COPPER
The copper charts look pretty negative, as the
market is carving out a pattern of slightly lower daily trading ranges. While
September copper appears to have support off the low of 122.80 early this week
and Chinese copper prices were slightly higher overnight, the market simply
appears to lack a clear cut bullish tilt. Apparently the market is still
concerned that stock levels are set to rise, as the Asian Press is suggesting
that some players have built up inventories of copper off the market in an
effort to arbitrage.
CRUDE COMPLEX
While energy prices were higher overnight off
expectations of an inventory tightening today it would seem that crude oil
remains in the most meaningful correction in crude oil since the June break. In
fact, unless the weekly inventory stats produce a countervailing flow of
information today, we have to think that the bear camp retains a slight edge. We
are a little concerned that the crude oil market was only marginally overbought
in the small spec and fund long position, as that could have put the market in a
classic fundamental and technical topping posture.
NATURAL GAS
We peg the middle of the range in Natural gas to be
$6.26 and fresh shorts might have to risk positions to at least $6.43.
Therefore, fresh shorts might want to wait for a rally to $6.32 to implement a
fresh sale. With the warm weather running out Thursday, we suspect that the last
strong cooling binge of the summer has passed and that should make buyers much
less interested and the sellers much more aggressive.