Futures Point To A Mixed Open
8/26/2004
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INTEREST RATES
The Treasury market spent most of this week
basically ignoring the scheduled economic reports but then suddenly seemed to
come alive following the 6.4% decline in new home sales. We think that the slide
in existing home sales Tuesday and the contraction in new home sales yesterday
generated some concern that a mainstay of the US economy was being threatened.
When one considers the amount of disposable income and confidence generated by
the US housing sector over the last three years, it becomes clear that housing
is not something that the economy can afford to ignore.
STOCK INDICES
The stock market continues to show impressive
action but it is also clear that consistently lower energy prices are a
necessary component of the bull case. As we have suggested a number of times
this week, there does appear to be a fundamental justification for the recent
weakness in energy prices but with the overnight pipeline attacks in Iraq, it
could be a choppy road to lower energy prices. We doubt that the stock market is
going to get much in the way of support from the regularly scheduled economic
reports today, but it will be important that the GDP report on Friday morning
gives the bulls something to hold onto.
DOW
The Blue Chips stocks continue to lead the charge on the upside and despite a
very short term overbought status, this market isn’t that overbought from a big
picture analysis. We suspect that the September Dow has critical support at
10,165 and that resistance comes in today at 10,200. Those entering into fresh
longs might have to risk positions to 10,094.
S&P
After such a big range yesterday, we would not be surprised if the market needs
to back and fill before resuming the upward march. Critical near term support
comes in at 1101.10. The 40 day moving average comes in at 1096.00 today and for
the trend to remain up, the market needs to hold above that level. In order for
the bulls to maintain control, energy prices must not regain upside momentum
early in the session today! For those wanting to monitor the impact of energy
prices on the equity market, a rise above $43.15 in November crude oil might be
a sign that trouble is brewing again.
FOREIGN EXCHANGE
US DOLLAR
The Dollar didn’t appear to stumble directly
following the decline in US new home sales but we have a feeling that weakness
in the US housing sector could end up being a major undermine for the Dollar. In
the near term, the US economic report slate really isn’t that significant but on
Friday morning one should not underestimate the importance of the GDP reading.
In the mean time, the Dollar might have to work to justify recent gains. The
recent impact of energy prices has been that soaring energy prices provide
support to the Dollar and with the Iraqi pipeline bombings overnight lifting
crude prices we suspect that the Dollar is garnering some minor support.
However, we are not sure that the currency players will continue to bid up the
Dollar, if the soft housing numbers in the US call into question the recovery
pace in the US. Because we think that the Dollar has been rising on white noise,
we just can’t suggest that traders buy the Dollar so far off the August lows and
within close proximity to the July and August consolidation highs.
EURO
Despite the fact that we are skeptical of recent
Dollar gains, we are not inclined to pick a bottom in the Euro. Overnight German
Ifo readings were soft again and the general conclusion was that the recovery in
Germany was not on solid footing. Therefore, the Euro probably respects recent
support of 120.48 but we are hesitant to buy into what appears to be a down
trend pattern. In order for the Euro to rise consistently, the US will really
have to stumble with a much weaker than expected GDP report Friday morning.
YEN
The Yen is under a little pressure this morning,
following comments from the MOF that soaring energy prices are indeed a negative
for the Japanese economy. In other words, the comments from the US Fed are being
echoed by Japanese officials and that should keep a slightly negative tilt in
the Yen. The pattern of lower highs should continue, especially if energy prices
manage to do more than bounce technically. Downside targeting in the Yen comes
in at 90.45.
SWISS
Until the Euro zone numbers strength, US numbers
weaken, or energy prices fall significantly, we doubt that the Swiss will avoid
a track down to 78.00. In fact, on rallies to 78.65 traders should consider
getting short.
BRITISH POUND
We think that the Pound weakness has been overdone.
In fact, with slightly better 2nd quarter Business Investment readings
countervailing a slight decline in business lending, we think that the Pound
could be bought on a dip to 178.69.
CANADIAN DOLLAR
A pattern of lower highs would seem to undermine the
Canadian in the short term. It is also a little discouraging that favorable
leading indicator results from Canadian failed to inspire buying yesterday.
Therefore a short term corrective slide down to 76.00 might be in the cards.
METALS
OVERNIGHT
London Gold Fix $405.95 +$.45 LME COPPER
STOCKS 108,525 mt tons -525 tonnes COMEX Gold stocks 4.823 ml +35,549 oz COMEX
Silver stocks 109.5 ml -4,763 oz
GOLD
Despite the periodic sharp setbacks in price, the
gold market has managed to maintain a bull market status since the late July
lows. In fact, the pattern since the July low has been for gold to grind higher,
experience a compacted setback and thaN recover to even higher ground. However,
the gold market seems to lack a cohesive focus as the Dollar, flight to quality,
inflation and economic uncertainty have all rotated as main catalyst behind gold
market action but few of those influences have stayed in place consistently.
SILVER
The liquidation move in silver did manage to respect
Monday’s lows at $6.54 and that should give the market some confidence. Trend
line support in September silver comes in at $653 today but a key technical
failure would take place with a slide back below $6.46. The fund contingent
continues to be the most critical component of the bull tilt in silver and
therefore it must manage to hold above the 40 day moving average of $6.534 this
morning.
PLATINUM
Even after the sharp rally yesterday, platinum
prices this morning are coming in a little weak. While the rally might have been
too much too soon we are not seeing real positive sentiment flowing from the
Asian sector. It continues to be our opinion that Asian interest in platinum and
copper are linked and that expectations for Asian demand have to be strong for
prices to be lifted.
COPPER
After an aggressive washout Wednesday, the copper
seems to have stabilized around a critical pivot point of 123.90. Chinese copper
futures were up overnight, mostly off short covering, but the global economic
outlook continues to limit copper. With slightly higher energy prices overnight
the result of yet another Iraqi pipeline attack and US housing numbers this week
pretty soft, the copper market is seeing its demand outlook pulled down.
CRUDE COMPLEX
The energy complex continued to show a
liquidation tilt Wednesday but it seemed like the liquidation effort was the
beginning of an effort to puncture the speculative bubble that has gripped the
energy complex for months. However, that liquidation tilt might have been halted
overnight by a round of fresh attacks on Southern Pipeline in Iraq. Apparently
the attacks have reduced oil export flow back to 1.2 million barrels per day
from the 1.8 million that the market was just beginning to factor yesterday.
NATURAL GAS
We suspect that the pattern of lower lows is set to
continue in the natural gas, especially with the regular energy complex in a
liquidation mode. While recent warm temps have been extended, we seriously doubt
that a late blip up in cooling demand is going to avert the down trend pattern
in natural gas. The next downside targeting in November natural gas comes in at
6.037 but a decline to 6.00 is certainly possible in the near term.