Futures Point To A Slightly Weaker Open
INTEREST RATES
01/27 OVERNIGHT CHANGE to 04:27 AM:BONDS+6 While
March bonds held critical support at 110.30 on Monday, the market’s weak close
and a shift toward a profit taking bias could pressure prices further ahead of
this week’s FOMC meeting. Bonds held support and firmed over night, but the
market could be pressured later in the session if the Jan Consumer Confidence
number is stronger than expected. The environment is still positive for bonds
since the Fed is likely to keep the rate outlook steady to soft.
STOCK INDICES
01/27 OVRNIGHT CHG to 04:27 AM:S&P-160, DOW-13,
NIKKEI , FTSE+31 The March S&P vaulted to new highs on bullish sentiment that
does not look to be abating any time soon. The combination of strong corporate
earnings reports and good economic news is fanning expectation that companies
will continue to see improvements in 2004. Monday’s existing home sales report
was shockingly strong and raised expectations that numbers out later this week
would come in above expectations.
DOW
With several major companies reporting solid 4th quarter earnings growth
including American Express and McDonalds and the bullish outlook for Merck seems
to have brought sentiment to a new higher bullish level. The market seems to be
focusing on the good (corporate earnings) and discounting the bad (firmer
dollar), but we would think some profit taking will take place ahead of the FOMC
meeting this week. The March Dow’s previous contract high at 10,629 now becomes
first support and then 10,580. The next upside targets are 10,750 then 10,820.
Unless the Fed hints that rates may rise, we would think profit taking breaks
will be shallow since the breakout up will likely draw in more investors on a
“don’t want to miss the next move up” mentality.
S&P
The break out up and close above the 1150 level in the March S&P could be the
start of the next leg higher. Although we would have liked to have seen more of
a correction, the relatively balanced net position of the combined large & small
trader suggests the S&P is less technically over bought than what indicators may
suggest. With both the Dow and the S&P moving to higher territory indicates the
rally is broad based. March S&P’s next upside target is at 1177 with support at
1149.
FOREIGN EXCHANGE
US DOLLAR
With the Dollar rallying Monday and the Euro down,
the Euro-zone and ECB officials appear to have created enough uncertainty and
confusion regarding their rate policy to achieve what they wanted through talk
instead of actions. Also there was a news report from Reuters indicating G7
members want to pressure Asian countries, specifically China to let their
currencies appreciate to more realistically reflect the state of their economies
and this news helped support the Yen and Dollar against the Euro. While Monday’s
price action does put the Mar Dollar in a better technical position, we are not
convinced the currency has made a major bottom. With the Bush Administration
seemingly unconcerned over the Dollar’s weakness and the Fed likely to keep
rates low, the fundamentals suggest more weakness. Given that the Euro-zone can
not agree among themselves, we doubt the G7 will come up with a stabilization
pact that all sides agree on. It appears that the Euro-zone representatives want
to focus on exchange rates while the US wants to focus on the economy so the
outcome of the G7 meeting could create a lot of volatility in the currency
markets. If the G7 statement shows no backing by the US to slow the Dollar’s
slide, then the current rally is just a correction. In the mean time, the March
Dollar could be pushed higher off technical signals on a move over 87.69 which
would set up a test of the Jan high at 88.32.
EURO
All talk and no action by the Euro-zone officials
will only temporarily depress the Euro. Even a statement by the G7 to pressure
China in to letting their currency float has little weight since China is not a
member of the G7. Unless the ECB actually cuts rates, the slide in the Euro is
likely to be temporary. We would think that the ECD would not become serious
about a rate cut unless the Euro rose over 130.00. The Euro garnered some
support over night from the German Ifo Business Climate Index which rose to 97.4
in January vs 96.9 in Dec and was the 9th straight monthly increase. The market
should be able to hold above the Jan low. Support for the Mar Euro comes in at
124.53 then 124.00 and resistance at 125.00 to 125.50.
YEN
Given the reaction to the Reuters story yesterday,
we doubt Japan would be eager to support a statement pressuring Asian countries
to let their currencies appreciate since they have spent a lot of money trying
to slow the Yen’s rise. The Yen moved higher over night however, on ideas that
the BOJ will refrain from Yen intervention ahead of the G7 meeting. With Japan’s
trade surplus continuing to rise in December, it gives the bull camp more reason
to drive the Yen higher and makes the BOJ goal to slow the Yen’s rise that much
harder. We think the market is coiling for an upside break out over 94.75, which
could happen this week if the BOJ stays sidelined and the Fed gives no
indication US rate policy will change.
SWISS
The break below critical support at 80.06 puts the
Swiss in a weakened technical position. If 79.50 fails to hold then a test of
the Jan lows are possible.
BRITISH POUND
The Pound could be effected if Prime Minister Tony
Blair faces some political backlash this week if his party does not back him on
a parliamentary vote on education. If the pound can hold 180, then the market
has a good chance of swinging up to test 185 again. A close below 180 and Mar
Pound could easily retest Jan lows.
CANADIAN DOLLAR
The Canadian finally seemed to be coordinated with
the Dollar movements with Monday’s higher price action. However, Dollar strength
still looks temporary at this juncture so the upside is likely to be limited for
the Canadian as well. Near term Resistance is at 78.48, support is seen down at
75.78.
^next^
METALS
OVERNIGHT
GLD-2.70, SLV-3.20, PLAT-1.30 London A.M.
Gold fix $404.00 -$2.20 LME COPPER STOCKS 378,225 -2,850 tons COMEX Gold stocks
3.44 ml +6091 oz Comex Silver stocks 124.8 ml + 106,145 oz
GOLD
The market looks vulnerable to loose more luster
this week as news buyers are on the sidelines with a wait-and-see attitude and
with the market focus on the dollar, positioning ahead of next weeks G7 next
week leaves a “long liquidation” pattern as the most likely. The traders report
showed an overbought condition and more importantly, a decisive long liquidation
trend. The threat of Central bank selling from Germany, rumors that the G7 might
curb the euro strength and the overbought condition of the market seems to be a
bearish set-up for this week.
SILVER
The market is trying to hold in a recent
consolidation and while it is tempting to see the pattern as a consolidation
before a resumption of the uptrend, the weaker gold outlook and a lack of
investor enthusiasm in Asia are factors which should lead to a long liquidation
sell-off. Downtrending resistance for March silver comes in at 631 today with
601.40 as initial downside target.
PLATINUM
The platinum market remains under the negative
influence of Asian holidays and long liquidation selling. Consumers appear
frozen due to price shock and a possible contraction of the Asian economies if
the bird flu problems accelerate. While the longer-term trend could remain up,
the short-term overbought condition suggests a pull-back to support levels of
834.70 or even 824.50 before finding some stability.
COPPER
The market seemed to be in a position to give back
some of the recent gains but the late surge in the stock market and overnight
news of another slow-down in production helped to support the overnight trade.
Another drop in LME stocks (down 2850) to the lowest stock level since March of
2001 added to the positive tone. OK Tedi, a mine in Papua New Guinea experienced
a failure and will be down for 8-10 weeks.
CRUDE COMPLEX
Heating oil led a sharp sell-off in the energy
complex Monday as a change in the weather forecast sent bulls running for cover.
A new weather forecast for the Midwest and Northeast is calling for less frigid
temperatures by week’s end so the market is taking out the weather premium which
has been behind the recent run up in prices. The extended weather forecast for
the 6 to 10 day outlook for Jan 31st through Feb 5th has the Northeast heating
oil region seeing normal to above normal temperatures.
NATURAL GAS
Natural gas looks to be on a slippery slope lower as
the change in the weather forecast for the Northeast suggest natural gas stocks
should be plentiful through the winter demand season. With stocks running over
9% above year ago levels, the market will need to see some hefty drawdowns to
stem the slide in futures. Given the revised forecast with temperatures
moderating over the next 6 to 10 days, supply problems and the opportunity for a
spike in demand diminishes by the day.