Futures Point To A Slightly Higher Open
8/16/2004
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INTEREST RATES
The Treasury market comes into the week generally
supported by weak US fundamentals. In fact, with last weeks muted inflation
readings, it would almost seem like the last Fed move was an overreaction. The
fact that the COT report showed the funds to be net long 40,759 contracts leaves
the Treasury long and partially overbought.
STOCK INDICES
While world wide equity markets remain in a down
trend pattern, it is clear that prices are under slightly less pressure than was
present for most of last week. We suspect that a minor setback in energy prices
early this morning will provide a temporary short covering lift to the market,
but with the Russian oil situation expected to step back in and regain the oil
markets focus again, we doubt that soft energy prices will last long. Many
traders are already suggesting that the month of August is set to post the
largest correction in 15 months and that highlights the entrenchment of bearish
attitudes.
DOW
We see overhead resistance in the September Dow at 9,858 but we would not rule
out a bigger bounce to 9,917 before the downside resumes.
S&P
With the S&P still showing a small spec long of 41,912 contracts as of last
Tuesday, one can’t say that the S&P is sold out. In fact, on a bounce to
resistance of 1069.20, we would consider a fresh short. However, given the
potential for a minor decline in energy market anxiety this morning, fresh
shorts might have to wait for a bounce to 1075, just to get short for a position
trade.
FOREIGN EXCHANGE
US DOLLAR
The Dollar seems to be poised to bounce slightly but
we are not convinced that the market is ready to bid up the Dollar consistently.
One thing that has changed, is that the economic outlook outside of the US
dampened significantly and that makes the rather mundane readings from the US
look a little stronger. In other words, the economic differential continues to
come in favor of the Greenback. Overhead resistance in the September Dollar
comes in at 88.37, with minor support seen at 87.94. Economic readings from the
US this morning look to be offsetting with the early New York manufacturing
readings potentially soft and the Housing Index reading around mid session might
be just enough to offset the early negative readings. On the week, the
Industrial production and Capacity Utilization readings look to be the most
significant of the week. The inflation readings due out on Tuesday might
undermine the Dollar, as they could make the recent Fed hike seem unnecessary.
The 88.00 level might be solid fundamental support but we have to think that the
bias remains down.
EURO
The Euro comes into the week at an expensive level
compared to the last two weeks action. Near term support in the Euro comes in at
123.00 and resistance is noted at 123.92. Given the negative economic readings
last Friday, we have to think that the Euro will have to prove it deserves to
hold all the gains posted last week. In short, the longs seem to have more risk
that the shorts.
YEN
Like the Euro, the Yen comes into the week
undermined by the slack economic readings last week. In fact, the Japanese stock
market remained weak this morning, specifically because of the soft GDP reading
last Friday. Therefore, we have to think that the Yen is poised to retest the
bottom of the consolidation at 89.86. In order for the Yen to rise back above
critical resistance of 90.70, the US will have to post softer than expected
numbers this morning.
SWISS
For some reason a number of analysts think that the
political environment is supporting the Swiss. Others are suggesting that the
Olympics and the potential for terrorist attacks are supporting the Swiss. In
any regard, the Swiss is sitting very high in the last two weeks range and would
seem to have heavy resistance just above the market at 80.84.
BRITISH POUND
The Pound seems to have the capacity to follow
through on last week’s strength. With the US, Japan and the Euro zone all
releasing partially disappointing numbers last week, the Pound and the Canadian
seem to have come into favor. Therefore, we suspect that the Pound will attempt
to make 184 support instead of resistance.
CANADIAN DOLLAR
The Canadian is poised just below the July and
August highs but might have to correct to 75.97 before setting up for an upside
breakout. Unfortunately the Canadian is sitting in the upper end of a two month
old consolidation pattern and seems to have lost some upside momentum.
METALS
OVERNIGHT
London Gold Fix $399.30, +$5.50 LME
COPPER STOCKS 80,575 mt tons -150 tons COMEX Gold stocks 4.710 ml -494 COMEX
Silver stocks 110.2 ml -199,039 oz
GOLD
The key directional indicator for gold will continue
to be the Dollar and last week’s trade deficit surprise and downturn in consumer
sentiment may seal the Dollar’s fate. With no economic releases this session, we
would not be surprised to see a bounce in the Dollar and some weakness in gold.
Oct Gold failed to push through 402 in over night trade.
SILVER
Gold seemed to be the favored alternative investment
vehicle to the Dollar last week, but with silver up strongly over night the
market looks to be playing catch up to gold. With Comex silver stocks headed for
a drop under 110 million ounces, which would be the lowest level since Oct,
2003, traders may begin to sense that silver is a good value under $7.00. The
COT report with options also showed that despite net increases in long
positions, traders are not yet overly long silver.
PLATINUM
Tight supplies and a technically bullish chart
formation look to be offsetting a questionable demand outlook given recent weak
economic numbers in the US and Japan. Oct platinum looks set to fill the gap
left in April at 874.50. Funds were strong buyers of platinum in Asia and with
sentiment solidly bullish, a stronger Dollar this session may not bring about
too much profit taking.
COPPER
Copper prices rose in China over night, but if the
Dollar holds on to gains, Dec copper may pull back to test support at 129.35.
Tightening copper inventories, the declining Dollar and indications of renewed
Chinese buying interest combined to send Dec copper back over the $1.30 level
last week which puts the market in a position to test the March highs. Copper
stocks have declined so dramatically this year that news of a mine accident in
Chile last week heightens anxiety that the world copper deficit may be even
larger than expected.
CRUDE COMPLEX
We would be surprised to see the oil market
exhibit as much upside action in the week ahead, as the market appeared to be
rising perpetually off the Iraq/Russian/Venezuelan issue last week. It seems
that Venezuelan officials had to extend voting hours because of a massive
turnout but it would seem that Chavez claimed to win the recall vote. Seeing the
leader retained is supposedly something that makes the National Oil Company
workers happy but the question will be what the general public thinks of the
outcome.
NATURAL GAS
While the regular energy complex continued to soar
last week, the natural gas market was tracking in the opposite direction. We
continue to think that US weather and US economics could effectively send
natural gas prices quickly down to the 550 level if it weren’t for the ultra
strong price performance from crude oil. With near normal temps in the Midwest
through Wednesday, the natural gas market might find some support early this
week but by Thursday forecasters are calling for a dive in temps and that could
yank the rug out from under natural gas and finish off the downward pattern in
effect since the May high.