Futures Point To A Strong Gap Higher
INTEREST RATES
One has to be impressed with the action in
Treasuries, as the charts have managed a slight upward tilt. We are not sure how
to quantify the economic information from last week, as some of the information
was soft, while other readings were impressively strong. What one can say is
that the recovery is disjointed and that one could make the argument that the
Fed could hold off from any move and have some justification for that decision.
STOCK INDICES
If 9/11 hadn’t happened and the world wasn’t
changed so dramatically, today would be one of those big rally window days. The
surprise early hand-over of Iraq, lower energy prices and rumors that another
key terrorist might have been captured would seem to be more than enough bullish
news to boost stock prices sharply today. Even the Treasury market is suggesting
that the upcoming FOMC meeting isn’t going to result in significantly higher
interest rates.
DOW
The first critical upside pivot point comes in today at 10,458 and then again at
10,471. Near term upside targeting comes in at 10,509 but a run all the way to
the 10,673 level is possible if energy prices continue to deflate. In fact, a
big disappointment is seen with a trade back below 10,438 this morning.
S&P
A critical breakout takes place this morning with a rise above 1146.20 and the
market would seem to be poised to rise to 1148. Trend line support must not be
tested down at 1131.15 or the market could see a significant slide in prices. A
closer-in pivot point support level is seen at 1141.30. We might also add that
the net spec and fund positioning in the S&P is very conducive to the bull camp!
FOREIGN EXCHANGE
US DOLLAR
So far the overnight developments have not boosted
the Dollar, as many might have expected. In fact, the Dollar remains vulnerable
on the charts and if seeing an improved political environment isn’t capable of
lifting the Dollar, we are not sure if the US economic condition is capable of
discouraging more selling in the Dollar. However, some potential sellers of the
Dollar are a little concerned about selling into the FOMC meeting, especially
with energy prices sliding and the geopolitical cloud becoming less restrictive.
In other words, the market seems to want to sell the Dollar, but with the Dollar
close to chart support and the FOMC meeting looming, we doubt that a downside
breakout will be seen in the Dollar today. However, we suspect that the Dollar
will slide to 88.88 and possibly down toward the early June low of 88.41. Even
US economic news should be supportive of the Dollar today, but yet the market is
showing almost no long interest.
EURO
The Euro continues to maintain a pattern of higher
lows and is seemingly unfazed by concerns that the Euro zone growth is lagging
behind. A critical upside pivot point is seen in the Euro at 121.77. However, we
still don’t think that the Euro has the macro economic setup to consistently
rise against the Dollar and therefore we see the May and June consolidation high
up at 122.60 as an extremely solid resistance zone. For today, we would not want
to implement fresh longs in the face of what appears to be a pro-US political
headline flow.
YEN
The Yen is in a bit of a technical washout but
unless the uptrend support at 92.27 is violated we have to assume that the trend
remains up. The Nikkei managed another rise overnight and that keeps sentiment
toward the economy positive. However, with the BOJ still suggesting that the
Japanese economy hasn’t left the realm of deflation and that rates need to stay
low, some players are banking profits on recent long Yen positions. From a
technical perspective, the Yen might be considered significantly overbought from
the sustained run off the May low!
^next^
SWISS
The Swiss seems to be coiling and might even have a
vulnerable tilt to the pattern. With a pro-US day politically and economically
it is possible that the Swiss might violate critical support at 79.72 and that
could spark a stop loss selling wave. However, we don’t see a big range move
today in the Swiss.
BRITISH POUND
The pattern of lower highs in the Pound, since the
June high, seems to limit the Pound but with the market rejecting a slide below
180 last week, the overall look to the Pound has improved. Aggressive traders
might consider getting short the Pound on a rally to up 182.15, as we don’t see
the Pound turning off the slide, that was started around the February high.
CANADIAN DOLLAR
To reverse a long held down trend channel, the
September Canadian must rise above 74.71 today and 74.68 on Tuesday. We are not
sure that the Canadian is ready for a significant extension of the recent
upside, but it should be able to test 74.68. Those that are long the Canadian
should sell calls and buy puts on higher action today, as a way to bank profits
and protect against an upcoming temporary profit taking liquidation.
METALS
OVERNIGHT
London A.M. Gold Fix $401.70 +$0.55 LME
COPPER STOCKS 105,100 mt tons -775 tns COMEX Gold stocks 4.403 ml -397 oz Comex
Silver stocks 117.1 ml -233,690 oz
GOLD
We doubt that the early hand over will materially
change the insurgent activity and we suspect that a shower of attacks had
already been planned ahead of the original deadline, which means that more
violence should be expected in the coming days. In the near term, the Dollar
hasn’t been markedly lifted by the hand over but it could find some support from
the coming FOMC meeting. One thing is clear that gold has managed to hold right
up on the highs from last week.
SILVER
Like gold, the silver market slipped off the early
rumor mill and with its net spec and fund long sitting at 44,000 contracts
silver is somewhat overbought but the positioning isn’t that extreme. However,
unlike the gold market, the silver market doesn’t seem to have close-in support
on the charts. In fact, the closest near term support in silver comes in down at
$6.08.
PLATINUM
News that a Platinum mine strike was solved would
normally be negative to platinum prices but the initial news of the strike last
week didn’t really boost platinum prices. Nonetheless platinum prices are
already in a sharp downside thrust this morning but given the last COT report
reading we have to think that the net spec position in platinum is already
“shortâ€. Therefore, platinum shouldn’t have that much selling fuel.
COPPER
Despite the fact that Chinese copper prices ended
higher, the US copper action is showing some early weakness. Maybe spillover
selling from the precious metals is undermining copper and maybe last weeks
gains are being seen as overdone. The recently COT report showed the net spec
position to be net short but with the market rallying after the report, we
suspect that the net spec position comes into the action this week mostly flat.
CRUDE COMPLEX
The surprise early hand off of Iraq, the capture
of a key terrorist in Iraq, an end to the Norway oil strike and the resumption
of Iraqi oil exports all look to add to the negative tilt in energy prices this
morning. However, we suspect that terrorist will go ahead with planned attacks
in Iraq regardless of the hand over. The Zarqawi capture if verified could
undermine the insurgent activity and that is also a negative to prices.
NATURAL GAS
Despite a forecast for hot temps in the first week
of July, the natural gas market is in a weakened posture. Maybe the trade is
doubtful that the heat will entrench and with the regular energy complex in a
liquidation mode, the small spec long might come under pressure. With the COT
report showing the small spec long to be 35,370 contracts there is certainly a
liquidation threat.