Futures Point To A Slightly Weaker Open
INTEREST RATES
12/19 OVERNIGHT CHANGE to 04:19 AM:BONDS-1 The
bond market surprised many in the trade this week, (including us) especially
with the sharp rise Thursday in the face of stellar US economic numbers and a
strong US equity market. We have to think that ultra thin conditions are
contributing to the upside action but those traders that are absent, certainly
are in touch with the market and capable of reacting to imperfections.
Therefore, given that prices have risen steadily over a period of days, the
argument that thin conditions have prompted the gains, doesn’t effectively
explain the sharp rise in prices.
STOCK INDICES
12/19 OVRNIGHT CHG to 04:19 AM:S&P-80, DOW-8,
NIKKEI +180, FTSE+17 The stock market continues to impress at least half the
marketplace, as the other half (the bond market) is apparently reading from a
different play book. Prior to the late rally Wednesday and the stellar rally
Thursday, we did not think that the stock market was factoring much in the way
of a last minute improvement in holiday sales. However, we now think that the
Santa Claus spirit is contributing to the upside.
DOW
One can hardly argue against the bull case but with the market not getting fresh
fundamentals today, early momentum will be paramount to the bulls maintaining
control. In fact, the Dow needs to hold above 10,201 to keep from fostering a
profit taking tilt. Don’t fight the trend but it might be wise to tighten profit
stops after another pulse up today.
S&P
The 1088.90 level needs to be taken out early today, in order to erase the idea
that the old high was an exhausted peak. A couple times over the last year,
double top formations were followed by a severe correction. Therefore, seeing
the March S&P make a higher high today, is very important to the tech crowd. It
would seem strange that the market could be disappointed with the action this
week, but a failure to make a new high would negate some of the bullishness. We
see no reason why the market should pause and until the COT confirms a
historical spec long, we are not willing to call a top in prices. Critical close
in support is seen at 1086.30, resistance is 1088.90.
FOREIGN EXCHANGE
US DOLLAR
We are no longer comfortable pressing the short side
of the Dollar! While we are not attaching too much weight to the statements from
Jean-Claude Trichet earlier this week, one has to take the dialogue as a sign
that the Dollar and Euro are getting into a critical zone. We are also concerned
that the world is underestimating the power of the US recovery and with the US
equity market starting to pour on the gas; it doesn’t make sense to chase the
Dollar in the hole. In fact, we think it is time for a short Dollar/Long
multiple call position in the June contract. If the Dollar continues down with
the type of big move that a number of “banks” just predicted, the short futures
should recapture a large portion of the call premium. On the other hand, if the
Dollar bottoms, a trader would have a leveraged long play in the Dollar calls.
Part of the reason we want to pick a bottom now, is that a number of big
currency trading banks have predicted even more massive declines in the Dollar,
which is similar to having everyone (even cab drivers) talking about the coming
Dollar slide! Mostly, we think the US economy is too strong and that central
banks are beginning to consider some action against the Dollar. We would not
“buy†the Dollar Index as the trend is still down and the big picture
fundamentals can take time to evolve! If you want to buy the Dollar, then affect
the trade in a call play, just to define risk and increase your holding period
capacity in the trade.
EURO
European inflation numbers overnight were as
expected and not contractionary like the numbers seen in the US and that favors
the long side of the Euro this morning. However, we are concerned about a short
term overbought status and the recent comments from the ECB. Longs should stay
long but should begin to tighten trailing profit stops in the Euro.
YEN
Some BOJ meeting minutes might spark some action in
the Yen today but one would expect the minutes to reconfirm the Japanese
recovery and reconfirm their desire to hold back the Yen. With the Dollar at
least pausing to consolidate that might allow a little selling pressure to set
into the Yen. However, unless the Dollar rises above 88.55 there isn’t shouldn’t
be enough pressure to push the Yen below critical support of 93.01. A minor
downward bias exists as long as the Dollar doesn’t make a new low!
SWISS
A moderate overbought condition exists and decline
to 79.88 could have been in the cards today if there were any US numbers. Maybe
the Swiss will be pushed down to support but only if the US equity market
manages another strong session.
BRITISH POUND
Critical support is seen at 175.36 today and the
market would seem to be a little overbought and in need of a minor correction.
However, there would not seem to be a reason to call an end to the uptrend in
the Pound. In fact, if the US stock market falters, the Pound should quickly
post another new high!
CANADIAN DOLLAR
The Canadian is telling us that something has
changed and with our opinion changing on the US Dollar, it might be possible to
see the Canadian slide down to 74.00 in the coming days.
METALS
OVERNIGHT
GLD-0.50, SLV-2.80, PLAT+9.40 London A.M.
Gold fix $408.75 -$2.00 LME COPPER STKS 447,175 tons -2,350 tons COMEX Gold
stocks 3.062 ml -272 oz Comex Silver stocks 124.4 ml oz Unchanged
GOLD
We continue to think that the gold market is coming
to a major decision point! We also think that the US Dollar is coming to a
critical decision point. While the comments from the ECB President Thursday
might be forgotten quickly it might pay to remember the dialogue from
Jean-Claude Trichet that seemed to intimate that the Dollar shouldn’t fall too
far and the Euro shouldn’t rise too fast as that could become a major issue for
gold. We have to think that the COT report released after the close today will
yield a net spec and fund long in gold to be 200,000 contracts.
SILVER
While silver might be moderately off its recent
high, it is within easy striking distance of the recent high and in a pretty
positive chart posture. We have to think that silver is going to see a fairly
lofty COT spec and fund reading after the close but since silver is mostly
following gold, the COT position probably won’t discourage current longs. It
would seem that the metals are working toward a strong finish for the year and
with the trend favoring the bulls, we would expect silver to have pretty solid
support down at $5.64 and then again down at $5.62.
PLATINUM
Following the massive correction earlier this week,
platinum has managed to recoil away from the recent low and attempt to build a
consolidation around $815.1. Reports that platinum lease rates were moving
higher, would seem to argue against the recent correction being a signal of a
major top in platinum, which is extremely overbought and is sure to register a
significant small spec and fund long position in the COT. Solid up trend channel
support lines in platinum come in today down at $809.9.
COPPER
Asian copper prices were higher overnight following
gains in the LME. Therefore, higher early US copper price indications are
supported by international action. Shanghai copper stocks increased by 1,517
tons, which is a minor negative but the market probably prefers to bask in the
positives of favorable macro economic information and surging international
equity prices.
CRUDE COMPLEX
12/19 OVERNIGHT CHG to 04:19 AM:CRUDE+20,
HEAT+33, UNGAS+15 Energy prices managed to carve out a slight new high and did
manage to hold near that high into the afternoon session Thursday. The market is
certainly a little overbought and in need of fresh bullish fundamentals but the
news floated by OPEC Thursday would seem to satisfy part of the need for fresh
bull news. Apparently OPEC production declined by 52,000 tons in November, while
OPEC thinks that its 2nd quarter 2004 call (demand) for OPEC oil, will increase
by 170,000 barrels per day.
NATURAL GAS
The weekly inventory report showed a draw of 134 bcf
and the annual surplus managed to widen to 215 bcf and therefore we can
understand the desire to bank some profits right after the report Thursday.
However, into the close Thursday, the natural gas market managed to right the
ship and close at the second highest close for the contract. While the natural
gas market might have acted overbought Thursday, traders should realize that the
draw season is underway and that the trade is aware of the potential for extreme
tightness and that should serve to discourage wholesale profit taking efforts.