Futures Point To A Stronger Open
INTEREST RATES
02/02 OVERNIGHT CHANGE to 04:02 AM:BONDS+0 The
Treasury market comes into the week a little suspect, as the market failed
initially to respond to partially supportive economic information last week. It
is possible that the Treasuries are being negatively influenced by the ebb and
flow of currency fluctuations and with the upcoming G7 meeting, one might expect
even more outside interference. However, overnight the Press is reporting
renewed BOJ intervention and that might solidify the bull case slightly.
STOCK INDICES
02/02 OVRNIGHT CHG to 04:02 AM:S&P+340, DOW27,
NIKKEI -6.8, FTSE+13 The stock market doesn’t seem to be getting as much
supportive corporate news as was seen in the November and December period.
Certainly the market is in much better technical condition than it was prior to
the January break, but we are having trouble isolating a bullish fundamental
theme. With the monthly payroll report due at the end of the week and the market
well aware of the disappointment from the December report, there is the chance
that confidence could be wounded.
DOW
While the Dow appears to have technical support at 10,458 it could easily fall
down to even numbered 10,400 without much impetus. In fact, a decline to 10,414
might be considered a good long entry point this week. Typically we might
suggest that traders buy the futures and buy a put against the position, but
under current conditions we don’t see the market to be so vulnerable that puts
must be carried.
S&P
While the January 29th low was technically a classical reversal low, it wasn’t a
classic exhaustion low and therefore we are not as convinced that the current
correction has run its course. Furthermore, we can’t seem to isolate a bull
catalyst that is capable of igniting a buying wave and that forces up to wait
for even lower pricing to get long. We do think there is a good chance that the
1125 level will hold but with the payroll report Friday, longs really need to
buy low in the recent trading range. Critical resistance today is 1132, with
near term support of 1129.90.
FOREIGN EXCHANGE
US DOLLAR
The Dollar just isn’t confident in its near term
direction. The idea that the US is allowing the Dollar to slide, has recently
been tempered by the idea that the upcoming G7 meeting is set to change or alter
that stance. However, it would also seem like US economic numbers since the
critical Dollar low, have failed to provide a fundamental backdrop for a
sustained Dollar recovery. In fact, if the US non farm payroll report fails to
live up to expectations this Friday one might even argue that the interest rate
differential fails to justify a rising Dollar. In short, we see no justification
for a sustained rise in the Dollar, but with a number of G7 members concerned
about the pace of gain in their currencies, one has to think that the Dollar
will get a little speculative buying interest into the G7 meeting. Overnight the
BOJ was supposedly buying Dollars and selling Yen, which gives the Dollar a
slight lift to start the week. However, a slide back below 87.25 in the March
Dollar could be considered a technical failure!
EURO
The chart pattern in the Euro is not that
impressive, as the pattern of lower highs continues and the slide since the
January high looks to be entrenched. While the Press is making out the overnight
Euro zone numbers to be supportive, we think that overstates the actual
readings. Furthermore, considering the stance of the G7, we have to be
interested sellers of the Euro on trades to 124.70 at least into the G7 meeting.
YEN
The headlines this morning suggest that the BOJ was
in the market overnight and with the Yen holding just below the upside breakout
point on the charts, it continues to feel like the BOJ is fighting a losing
battle. The outlook for the Japanese economy remains upbeat and that should keep
money flowing toward the Yen. Be short a June Yen and long 3 June 97.50 Yen
calls for 127, the position is nearly flat initially but a break in futures will
reduce the premium risk. Liquidate the Futures on a correction to 93.91.
SWISS
Traders probably have to be content to sell the
Swiss on rallies, as the charts are pointing down and the Euro is serving to
drag the Swiss down. Assume more downside until the Swiss manages a trade back
above 79.80.
BRITISH POUND
The Pound is attempting to consolidate and could put
in a critical bottom sometime this week. The Press is claiming that recent PMI
readings justify another rate hike, but we think that is a little extreme as the
numbers weren’t that impressive. Critical buying support comes in down at
180.92.
CANADIAN DOLLAR
The charts continue to look ugly and with the US
Dollar looking to remain strong into the G7 meeting, one might expect more
downside in the Canadian. Near term downside targeting is seen down at 74.46.
^next^
METALS
OVERNIGHT
GLD-0.10, SLV-1.00, PLAT-6.30 London A.M.
Gold Fix $401.85 +$.55 LME COPPER STOCKS 358,075 -5,525 tons COMEX Gold stocks
3.35 ml -142,726 oz Comex Silver stocks 124.1 ml -72,134 oz
GOLD
While the Dollar is significantly off the highs
posted last week and is below a critical pivot point of 87.56, the trade remains
concerned about its ultimate direction. The weekly COT report showed the net
spec long position in gold to be 159,000 contracts as of last Tuesday and with
the gold market markedly below that level coming into the session this morning
we have to think that the net spec long is close to 150,000 contracts. The
150,000 contract level is a critical level, as that could be considered the old
high in the speculative positioning.
SILVER
The silver charts don’t appear to be poised for a
resumption of the uptrend, even with the market managing to bounce off the $612
level last week. The net spec long in silver actually increased by 10,000
contracts in the latest report, but with the market breaking 43 cents following
the report, we have to think that a large number of longs were forced from the
market late last week. With the market injured, it would not be a positive
development to see the March contract fall below $618.5.
PLATINUM
The platinum market is apparently staying under
pressure, which is a change of pace for a market that has had few weaknesses.
Like silver we have to wonder if the threat of bird flu is causing some
investors and speculators to move to the sidelines. Just to equal the break seen
in December, the April platinum would have to fall to $809 and that suggests to
us that there is more downside.
COPPER
With the strike factor driving speculative players
into the long side of the market last week, it would seem that the physical
buyers are being forced into additional buys. Another rather large decline in
LME stocks overnight simply confirms the pattern of tightening and gives the
copper the potential to soar this week. Unlike other metals markets, the copper
market doesn’t seem to be impacted much by the bird flu threat.
CRUDE COMPLEX
The combination of a short term oversold status
and much colder than expected weather should help to put a floor under the
energy market. With the Midwest seeing cold through the end of the week, the
mild start to February predicted early last week, is nowhere to be found. The
February 10th OPEC meeting could also lend some support to prices but with the
market taking note of increasing Russian production we are not sure OPEC is
going to simply give away market share, in an effort to drive prices up from
pretty favorable existing price levels.
NATURAL GAS
Given the failure late last week, into much colder
than expected Midwest temperatures, it is clear that the bull camp has lost its
resolve. In fact, it might now take a much bigger than expected weekly inventory
draw just to slow the liquidation pace. With the recent COT report showing the
small spec long to be 25,000 contracts, it is clear there is still plenty of
stop loss selling potential left in the natural gas market.