Futures Point To A Slightly Weaker Open
INTEREST RATES
The Treasury market continues to point down on
the charts and is certainly seeing a consistently negative fundamental news
flow. About the only supportive development for bonds and notes Tuesday, was the
fact that the stock market fell back sharply after forging gains early in the
session. Today the market is confronted with inflation readings and it would
appear that the CPI report will be only a slightly negative influence.
STOCK INDICES
We are not sure why the market failed to extend
the early rally Tuesday, as the macro economic news was certainly much better
than expected. However, for the market to flip its fundamental focus from
growing optimism on the recovery, to one where the trade begans to fear higher
interest rates, is certainly a disappointing development. While it is difficult
to spin ultra strong retail sales readings into a negative issue, that is
exactly what happened Tuesday.
DOW
Overnight action in the Dow is pointing down. With both high and low cap
bellwether stocks showing weakness overnight, and the improvement in the economy
being glossed over by the critique of Iraq and fear of higher interest rates, we
see no reason why prices wouldn’t continue to slide down to 10,285. To turn away
from the downward tilt, the June Dow would have to regain 10,369.
S&P
As we feared the market made another double top formation in the action Tuesday.
With the techs and fundamental tilt pointing down, we would expect prices to
slide to 1120 and possibly down to 1117.60 before a solid low is formed. In
fact, we think the market is primed for a three day down count, which suggests a
bottoming on Thursday.
FOREIGN EXCHANGE
US DOLLAR
We are actually surprised that the combination of
disappointing US equity market action and political wrangling hasn’t robbed the
Dollar of gains off the absolutely stellar US retail sales readings. In other
words, the international trade is apparently seeing through the domestic smoke
in the US, to an economy that appears to be better off than its own citizens
want to admit. With the two political parties in the US spending millions of
Dollars every day to bat the state of the economy and the war in Iraq back and
forth, it is clear that some uncertainty remains in place. However, the numbers
are so strong and the prospect for higher US rates are now a reality and
therefore investors are voting with their pocketbooks. In other words, the US
wins the interest rate and economic differential battle, with the Euro zone and
the Swiss and the Pound. With the Dollar managing to rise above the March high
and also rising above long term down trend channel resistance lines on the
weekly chart, there is the chance for more short covering. Some suggest that the
Dollar really doesn’t climb above long term down trend channel lines, until it
rises above 91.00.
EURO
The euro seems to be headed down to weekly
consolidation support of 117.57, with the only fundamental support coming from
the hope that the US political situation will undermine the current Dollar rise.
One might also expect the Euro zone to produce damaging economic information in
the near future and that could keep the currency in its current slide.
YEN
The Japanese suggested that they would not withdraw
troops from Iraq and that could give the Yen a little political baggage and
accentuate the current downside thrust. With the failure on the charts, the Yen
might be headed down to next support of 92.80, but even lower support of 92.00
can’t be ruled out!
^next^
SWISS
Surprisingly the Swiss has managed to avoid a
downside breakout and that certainly is a sign that the downside might be
limited. Therefore, we suspect that the Swiss is going to respect support at
76.75.
BRITISH POUND
A major technical failure on the charts overnight
would seem to project a slide down to 177.65. Maybe the Pound will find
temporary support at 178.68 but the near term trend is still pointing down.
CANADIAN DOLLAR
The BOC bit the bullet and should see its currency
begin to find support. However, we think that the Canadian has some more minor
downside action ahead, before a bottoming is achieved. In fact, fresh longs
might have to risk fresh longs to at least 74.25.
METALS
OVERNIGHT
London A.M. Gold Fix $405.75 -$11.70 LME
COPPER STOCKS 165,300 -4,900 tons COMEX Gold stocks 3.871 ml +58,209 oz Comex
Silver stocks 122.1 ml +600,756 oz
GOLD
Certainly the Dollar undermined the gold market and
with a record spec and fund long position, it didn’t take much to get the stop
loss selling train rolling. It also appeared as if a number of macro economic
anxiety longs decided to throw in the towel because of the much stronger than
expected US retail sales report. We also think the initial rise in the stock
market Tuesday prompted some rotation away from the precious metals.
SILVER
With even more selling seen in the overnight action
and particularly weak Asian silver action, we expect silver to fall toward the
next support of $7.075. The fund liquidation potential in silver is the key
dominating force, because that issue was really the only issue, one could come
up with, in explaining the $3.00 per ounce rally in silver over the last 9
months. Markets like copper and platinum have strong demand and tight supplies
to cushion against selling but the silver has no such condition.
PLATINUM
The platinum market did a good job of separating
itself from the precious metals but some of the liquidation pressure has spilled
over onto the platinum this morning. In the near term we would not be surprised
to see the platinum slide back to the top of the March consolidation around
$915. Apparently platinum supplies are tight enough and demand strong enough, to
turn away part of the liquidation tilt.
COPPER
Apparently Chinese buying surfaced overnight, as a
sign that copper is at an attractive level. However, persistent gains in the
Dollar do appear to make US copper less attractive in the eyes of the world.
Reuters suggested that Chinese copper imports for the first two months of this
year soared by 52% and that should leave the market underpinned, even though the
near term outlook is somewhat soft.
CRUDE COMPLEX
The energy complex is presented with a
significant weekly inventory report today! In fact, the API/DOE report this
morning might be one of the most significant reports of the year! Furthermore,
we are not sure if anyone really has a grip on what the numbers will be, as last
month (in the dead of winter) the crude oil stocks managed to posted a series of
builds and now that winter heating demand is tapering off, it will be critical
to see what the rebuilding status is. In other words, the market should be in a
prime rebuilding posture and if there is not documented rebuilding, we expect to
see the same type of action that unfolded last Wednesday. Last week many traders
were shocked to see the market rally so aggressively, on such a minimal draw,
but the real net effect of the minimal draw was that prime rebuilding was not
taking place.
NATURAL GAS
Surprisingly natural gas prices weakened as if a
leading indicator for the regular energy complex. While that sounds surprising,
it seems that natural gas prices have been leading the crude, not following it.
Seeing the June natural gas contract fall below $5.77, could signal a violation
of near term support and could spark a stop loss selling binge, by what has
become a massive small spec long position.