Futures Point To A Slightly Weaker Open
INTEREST RATES
12/22 OVERNIGHT CHANGE to 04:22 AM:BONDS+9 There
are no scheduled economic reports today but with the prospect of renewed
terrorism against the US, it would seem that Treasury prices are going to manage
a climb to an even higher trading range. It is likely that Treasuries will
largely ignore economic numbers released this week, unless the terrorism
dialogue somehow gets displaced in the headlines. In other words, the bond
market was in favor last week and would look to enter this week in even more
favor.
STOCK INDICES
12/22 OVRNIGHT CHG to 04:22 AM:S&P-50, DOW-12,
NIKKEI +87, FTSE-3 The stock market will have a good test of the bullish tilt
seen last week. Since the stock market was already battling a divided consensus,
the renewed threat of terrorism gives the bear camp an added reason to attack
the market. However, the Dow has shown the ability to stand up to liquidation
pressure and the S&P net spec long position of only 58,000 contracts, suggests
that the market isn’t nearly as overbought as many might have expected it to be
this week.
DOW
We think that longs would be well advised to bank profits, or at least to secure
some tight options coverage against longs. In other words, sell an at the money
January call and buy a January at the money put against long futures and plan to
hold that position for the coming week. In our opinion, a trade back below
10,227, could signal a more significant slide down to 10,135. For stubborn
bulls, one might want to give the market until mid day, just to see if the
market can overcome fresh negatives. However, if prices remain weak into the
afternoon trade, we expect the selling to intensify.
S&P
As mentioned before, the net spec long in the S&P was only 58,000 contracts and
many expected that reading to be significantly higher. However, if the
fundamental case deteriorates, having the technical case in good position, will
only serve to mitigate the downside swing. Trend line support comes in today at
1067.00 and that could become a target, if near term support at 1080.50 fails
into mid session today. Like we suggested in the Dow comment, give the bull camp
the benefit of the doubt until mid session but if prices are lower into the
afternoon action expect the market to begin a profit taking slide that could end
up taking prices down to 1058.50 in the March S&P.
FOREIGN EXCHANGE
US DOLLAR
With the Dollar hitting a fresh low against the Euro
this morning it would seem that the bottoming potential from last week is lost.
In other words, the Dollar might have been able to forge a consolidation pattern
given ongoing optimism toward the US recovery but the new terrorism threats,
evidently focus on potential attacks inside the US and therefore it would seem
that the Dollar will encounter renewed selling pressure. Since the US economic
report slate is empty today and mostly thin for the rest of the week, the Dollar
might not be able to shut off the selling pressure once it gets started.
Therefore, we suspect that a number of fresh longs entered the Dollar late last
week and that positioning could now feed the downside track early today, with
stop loss selling. It goes without saying that a new contract low in the Dollar
Index of 88.15 puts the bears in control right out of the box. However, if the
Dollar manages to rebound before the close, the bottoming potential will be
given significant respect!
EURO
A big range overnight seems to give the Euro a clear
edge in the early going. The economic differential between the Euro zone and the
US is downgraded with the prospect of direct terror attacks against the US and
that should take the lid off the Euro. In fact, we might see such a strong run
in the Euro that the ECB is forced to make another statement against the rise!
Near term targeting is seen at 125.10.
YEN
The yen looks set to rise to the top of the December
consolidation pattern, as the US terror threat could push some money out of the
Dollar toward the Yen. While the BOJ might step in to stop the run up, we
suspect that the market will have the capacity to forge a 94.00 print this week.
With Japanese economic numbers overnight coming in stronger than expected and
the Trade surplus “growth†much stronger than expected, it is clear that the Yen
hasn’t reached a level that will correct the trade imbalance. Therefore, we
would not be surprised to see new highs against the wishes of the BOJ.
SWISS
Given the consolidation seen last week, the Swiss
should be in a very good position to soar. In fact, considering the increased
flight to quality condition and the recent technical balancing, the Swiss should
easily rise into new high ground. If a new high isn’t posted by mid session,
something must be operating that we haven’t considered.
BRITISH POUND
The fact that the Pound is weaker today could signal
at least a temporary change in market sentiment. Maybe the UK is seen as a
potential target in the renewed terrorism situation and that is going to result
in some profit taking in the Pound. The 175.00 level is critical support but the
Pound could slide to 173.72 without breaking down the recent up trend pattern.
Softer 3rd quarter UK business investment readings overnight, simply add to the
liquidation tilt seen out of the early trade today.
CANADIAN DOLLAR
The Canadian might be saved by the turn of events
over the weekend. We suspected that the Dollar was bottoming last week and that
potential seemed to be reflected in the massive slide in the Canadian for the
month of December. Now it would seem that the Canadian could get a reprieve.
However, in order to shake the breakdown on the charts, the March needs to
regain 74.60 today.
METALS
OVERNIGHT
GLD+1.50, SLV+0.20, PLAT+2.00 London A.M.
Gold fix $410.80 +$2.05 LME COPPER STKS 445,050 tons -2,125 tons COMEX Gold
stocks 3.062 ml -139 oz Comex Silver stocks 123.8 ml oz -595,026 oz
GOLD
Last week we were beginning to have concerns that
the gold market was about to top because the Dollar was going to bottom.
However, with the increased chatter of an attack inside the US, some luster has
come off the US economic recovery and that in turn allows the Dollar to come
back under pressure. The weekly COT report showed a net spec long of 185,000
contracts, which is not inflated significantly, considering recent gains and
that is another reason why we think that gold has some additional upside
potential.
SILVER
The net spec long in silver coming into this week is
probably 83,000 contracts, which is not a new record spec long. Therefore, like
gold, silver would appear to have more upside capacity. With the silver market
already into new high ground on the charts this morning, it would seem that a
fresh buying wave is underway and that prices are headed to the next resistance
on the charts of $5.82.
PLATINUM
Surprisingly the platinum market is faltering under
the revived terrorism concerns and that suggests that platinum has been driven
up by a good measure of demand and that its precious metals aspect is a little
less significant than we would have expected. Near term support is pegged at
$810 but a failure to right the ship quickly today, could result in a slide to
even lower support of $800. In other words, seeing a lower trade today would
send a clear message that platinum is more of a physical commodity than a
precious metal.
COPPER
Chinese copper prices did manage a new high in their
session but closed slightly lower overnight. It would seem that the copper
market remains in a bullish setup but prices are rather expensive considering
the renewed terrorism threat and the fact that prices are being supported by a
couple different strikes. However, it is a little supportive that the COT report
showed a net spec long increase of only 2,000 contracts.
CRUDE COMPLEX
12/22 OVERNIGHT CHG to 04:22 AM:CRUDE-32,
HEAT-33, UNGAS-69 The crude oil market probably comes into the week with a
record net long fund position and with the potential for mild temps in the week
ahead, the bulls could have trouble maintaining control over prices. We are not
sure how the increased threat of terrorism will play into the market sentiment
but it would seem that the “chatter” is still pointing to the use of aircraft
and that might discourage some fresh longs from entering the fray. Remember
following 9/11, a total shut down of US air traffic resulted in a massive slide
in energy prices and that could give the market pause, considering that nearby
prices have recently approached $34.00 and the technical position is moderately
overbought.
NATURAL GAS
The natural gas market surprisingly isn’t as long as
we would have expected, given the magnitude of the gains posted since the
November lows. In fact, with the funds net short and the small specs holding a
smaller than expected long, the market is in remarkable shape from a positioning
perspective. In the near term, the weather is a slight negative but there are
evidently some cold threats surfacing next week and that should keep the bears
from garnering much control over prices.