Futures Point To A Slightly Stronger Open
INTEREST RATES
Surprisingly the Treasury market has fallen back
off the recent upward tilt and has done so in the face of slightly better than
expected regional Fed manufacturing readings. One might expect more of the same
today from the Richmond Fed, but we doubt that the figures will give the bonds
the impetus to fade below critical consolidation support of 107-20 in September
bonds and 110-10 in September Notes. According to the IEA, Chinese growth might
slow to 8.1% in 2005 and that should provide a measure of support to Treasuries,
as many economists think that slightly slower Chinese growth will lead to slower
global activity and less upward pressure on commodity prices.
STOCK INDICES
The stock market seems to be getting some
indirect support from the anticipation of earnings and from talk about a large
IPO. In other words, the mostly negative dialogue present for the last two weeks
seems to be tempered. Keep in mind, we think that negative sentiment has been
tempered not reversed.
DOW
The pattern of higher highs in the Dow, gives the market a slightly better look
than was present for most of last week. However, we are not sure that the market
has anything but minor short covering capacity, unless some major headline shift
unfolds. Critical resistance comes in at 10,231 and then again at the gap area
of 10,246.
S&P
In order to turn the short term trend around, the September S&P will have to
regain 1115. However, seeing a slide back below 1110.70 could be very damaging
to sentiment. In the end, the S&P is fighting an uphill battle, with only
fleeting support being derived from periodically favorable corporate earnings.
We see the 1120 level as significant resistance, with the trend pointing down.
FOREIGN EXCHANGE
US DOLLAR
While the Dollar has hooked up against the down
trend pattern, we are not seeing the type of information that would normally
accompany a trend change. Certainly the weekend story that US growth continues
to outpace the Euro zone growth was cause for a slowing of the downtrend in the
Dollar. However, unless US corporate earnings reports show a marked improvement
we doubt that the rise in the Dollar will be anything significant. It is
certainly possible that traders see some additional follow through buying in the
wake of Richmond Fed readings and off the anticipation of favorable IBM earnings
on Thursday, but unless something significant surfaces we have to think that the
Dollar trend remains down. Until the Dollar manages to climb above a sharp down
trend channel line at 89.05 we suspect that the trend will remain down.
EURO
The Euro has already managed a significant setback
against the trend, we suspect that a slide to channel support is possible and
that support comes in down at 123.10. As we have been saying for several weeks,
we now suspect that the Euro zone is due to see a down tick in June economic
numbers and that could serve to undermine the trade and send the Euro into the
most significant correction since early June. Unfortunately for those looking to
get short the Euro, there really isn’t much in the way of June Euro zone numbers
to be released until late next week and that could save the Euro from
significant near term weakness. The September Euro has a critical pivot point
today at 123.53 and a close above that level could really temper the downside
tilt.
YEN
Japanese investors bid up Japanese car companies and
that positive sentiment seemed to bolster the outlook for the Yen. With Asian
freight rates on the rise again it is possible that interest in the long side of
the Yen increases and that could put the Yen back into the May and June uptrend
pattern. In order to turn up positive sentiment the Yen needs to mount a rise
above 92.70 today.
^next^
SWISS
A major downside range trade in the Swiss after the
massive rise off the late June low has to leave the market technically
vulnerable to even more losses. Near term downside targeting is seen at 80.87
and possibly to 80.64.
BRITISH POUND
A surprise decline in the June CPI has the Pound
questioning some of its recent gains. With the UK CPI declining, one might
suggest that growth is also slowing and that takes away some of the dominance of
the UK economy and undermines the Pound. Fortunately for the bull camp in the
Pound, the US doesn’t seem to have the scheduled information flow to capitalize
on the weakness in the Pound. Therefore, critical support should hold at 184.42.
CANADIAN DOLLAR
A violation of support in the Canadian would seem to
leave the market vulnerable to more liquidation. Near term downside targeting is
seen at 75.18 but the up trend should remain in place. An even larger correction
to 75.00 can’t be ruled out, given the magnitude of the gains off the June low.
METALS
OVERNIGHT
London A.M. Gold Fix $404.25 -$4.30 LME
COPPER STOCKS 96,775 mt tons -475 tons COMEX Gold stocks 4.429 ml -1,447 oz
Comex Silver stocks 117.5 ml -961,915 oz.
GOLD
With the reversal action in the Dollar the support
appears to have temporarily fallen out of the gold market. It would seem that
gold is lacking the breadth of bullish support seen last week, as the market ran
up, became overbought technically and is now taking some profits. Chinese gold
prices were lower and Japanese prices also slipped setting the US session up for
a down day.
SILVER
Like gold, silver is also showing signs of
correcting recent gains. Critical support in September silver comes in at
$6.435. However, given the recent surge in spec and fund longs in silver, one
must realize that the market is vulnerable to aggressive stop loss selling,
especially if $6.43 and $6.37 levels are violated.
PLATINUM
Like gold and silver the platinum market is poised
for a correction. Surprisingly platinum is showing minor weakness in the face of
a possible strike at a Stillwater facility and seeing a strike would certainly
pinch already tight supply. Therefore, we doubt that platinum is going to see
much in the way of downside follow through.
COPPER
Chinese copper prices were lower overnight but that
doesn’t seem to have undermined the early US action. Apparently a strike threat
at a Grupo Mexico Mine is countering the liquidation tilt in place following the
reversal off the 130 high on Monday. If the market is truly concerned about
tighter supply due to a series of strike threats, we suspect that prices are
going to remain firm.
CRUDE COMPLEX
The energy complex came into the week
significantly above the June lows and only marginally under the May and June
contract highs. In fact, the market over the last month energy prices have swung
from an extreme tightness concern, to an overconfidence that supply was
rebuilding and back to some concern over product stocks. However, while the
energy complex exploded early Monday with sharp gains in the product markets,
the energy market failed to hold the gains into the close.
NATURAL GAS
The natural gas market came under significant
selling pressure, as temps were lowered in many US forecasts. In addition to
average (at best) US summer temps, the failed rally attempt in the regular
energy complex also added to the downside pressure in natural gas on Monday.
Because the natural gas market held a large small spec long and the fundamental
tilt is deteriorating, it is not surprising that prices are softening
considerably.