Futures Point To A Slightly Stronger Open
INTEREST RATES
02/20 OVERNIGHT CHANGE to 04:20 AM:BONDS-1 The
Treasury market continues to coil but maintains a slight upward tilt on the
charts. Yesterday the expectations on the numbers were for favorable readings,
but in the end the numbers proved disappointing. While the initial claims
reading showed a bigger than expected decline, the ongoing claims readings
jumped by over 100,000 to countervail the hope for improvement on the job front.
STOCK INDICES
02/20 OVRNIGHT CHG to 04:20 AM:S&P+340, DOW35,
NIKKEI -33, FTSE+14 The stock market is struggling but considering the technical
condition of the market, we doubt that prices are set to slide very far. In
fact, given the action this week, we don’t see many weak handed longs left in
position. Corporate earnings news this morning is neither bullish nor bearish,
with HP/Compaq hitting targets overnight and the market showing minor early
price strength.
DOW
The Dow is sliding lower and really doesn’t have a strong fundamental story to
reverse the near term pattern. In fact, the March Dow doesn’t have chart support
until 10,623 and might not expect to get anything from the US numbers today, to
send prices in a defined direction. Those that want to get long, should buy
futures and sell out of the money March calls, as the momentum in the market
might remain too weak to see a quick move higher.
S&P
Historically the S&P doesn’t do well off a consolidation pattern. It is
impressive that the S&P has managed to respect support of 1145.50, despite some
disappointing economic numbers from the US. However, we can’t rule out
additional downside unless the market gets a surprisingly bullish fundamental
boost from the headlines. In fact, fresh buyers probably have to wait for a
slide to 1140 to get long the March S&P. Those that do get long the March S&P
probably don’t need to carry put protection, but you might want to consider
selling a March 1170 call for 850 points against the long futures.
FOREIGN EXCHANGE
US DOLLAR
More gains in the Dollar overnight seemed to take
the form of simple technical short covering. However, some Dollar longs might
have come into position, in hopes that the US inflation numbers will show an up
tick. We doubt that inflation will surface but we would not want to bet against
it, considering energy and base metals price action. It is possible that the
Dollar continues to creep higher but it seems like the Dollar lacks the economic
prowess to climb above 87.00. So far, the Dollar strength seems to be coming
mostly from concerns for the Euro zone recovery, as opposed to ideas that the US
economy is strengthening. Therefore, Dollar gains are simply a meandering
action, within the last two months consolidation zone and the downtrend probably
remains in place.
EURO
At a corporate business conference, a number of
CEO’s were somewhat skeptical of European growth prospects and that is another
element that argues against the upside in the Euro. However, the euro zone trade
surplus managed to expand and that would seem to counter the argument that the
soaring Euro is hurting the recovery in that economic zone. In the mean time,
the Euro looks to continue to take profits and trickle lower in the range but we
suspect that support will be found next week, at slightly lower levels. On the
other hand it would not be a good thing for Euro longs to see a hot US CPI
reading, as that could catch the market technically damaged, which in turn could
promote long term stop loss selling.
YEN
The BOJ must be giving each other high 5’s because
they seemed to have won the most recent battle of control over the Yen. Because
of the consistent long interest in the yen over the last year, it is not
insignificant that the Yen has violated a series of major chart support levels.
More downside today especially with the Dollar showing continued strength. Near
term targeting is 92.23.
^next^
SWISS
More downside ahead as a number of technical levels
were violated overnight and we suspect that recently entrenched longs are
planning to exit. Near term downside targeting is seen at 79.77.
BRITISH POUND
While the Pound would seem to have the most to offer
fundamentally, the violation of critical channel support overnight is too
significant to ignore. Stop loss selling might put the Pound down to 185.92
before a solid bottom is found. Even with the strongest January retail sales
rise since December 2002, the Pound looks to be in a profit taking posture.
However, we doubt that the trend is turning down in the Pound.
CANADIAN DOLLAR
The Canadian remains in a light downward tilt partly
because of the Dollar but partly because the Canadian economic numbers are not
sending a clear message. CPI was up 0.1% in January but up 1.5% over year ago
levels and that is a conflicting message. Unfortunately the Canadian numbers
don’t give much of an indication of the type reading that might be expected from
the US this morning. If the US inflation number is hot, that could cause the
Canadian to slide more significantly.
METALS
OVERNIGHT
GLD-1.60, SLV-3.30, PLAT+4.20 London A.M.
Gold Fix $408.25 -$2.05 LME COPPER STOCKS 303,325 -5,425 tons COMEX Gold stocks
3.347 ml -32 oz Comex Silver stocks 123.9 ml -47,836 oz
GOLD
The gold market continues to be on the technical
ropes, with the detrimental Dollar action and the moderately large small spec
and fund positioning. Therefore it is not insignificant that the April gold
comes into the session in violation of several close-in support levels.
Fortunately the gold market did work down its spec and fund long in January, or
the market would be much more vulnerable.
SILVER
So far, the silver market has avoided aggressive
technical liquidation, despite the fact that the market is holding a massive
record spec and fund long. However, traders need to be careful with declines
below $6.58 and $6.55 basis the March contract. It would not seem like silver is
tracking the Dollar as closely as the gold market and that is a fortunate
development for the silver bulls.
PLATINUM
A poor technical trade overnight would seem to
project a minor slide in platinum prices with first support coming in down at
$841.7. Seeing the gold correction and the Dollar rise is apparently robbing the
platinum market of its speculative tilt. A logical correction point in the April
platinum comes in down at 841 but prices might manage to hold 848.
COPPER
Shanghai copper stocks leaped by 25,262 tons and
that is certainly a big enough figure to temper some of the speculative fervor
swirling out of the Chinese copper market. However, overnight the Chinese copper
market closed limit up, but that was probably a reaction to the US action on
Thursday. It would seem that the US market is primed to open a little weaker
this morning, possibly because of the Shanghai copper stocks increase and the
news that a mine in New Guinea will restart some operations on March 12th.
CRUDE COMPLEX
The weekly inventory readings were mostly
bearish, as the large crude stock build might be expected to take center stage
over the even larger distillate stock decline. In short, the crude tightness is
the main basis behind the bull case and seeing the distillate stocks discharge
in the waning weeks of the winter isn’t anything to be concerned about.
Furthermore, with the distillate stocks currently standing at a 12 million
barrel surplus to year ago levels we see the market discounting the impact of
the big weekly draw reading.
NATURAL GAS
With the 172 bcf draw Thursday morning, it is clear
that the bull camp can’t get the news to discourage selling. It should also be
noted that the annual surplus expanded, in a clear sign that conditions are not
tightening, despite the extreme cold seen in late January and early February. As
mentioned in the regular energy complex, US January oil demand declined by 0.3%
compared to last January and that clearly shows that energy demand this year is
in fact comparative to the mild 2003 winter.