Futures Point To A Stronger Open
INTEREST RATES
The Treasury market showed its true colors
yesterday when the weak housing starts number failed to inspire the bull camp.
Certainly seeing inflation dialogue from the Fed, right into the housing number,
discouraged the bull camp but from the action yesterday it is clear that the
bull camp doesn’t have a large following waiting in the wings. With
International Equity prices showing impressive overnight follow through, off an
inspiring corporate earnings report and slightly softer energy prices, the
Treasury market is probably going to encounter some renewed selling pressure.
STOCK INDICES
It is a little surprising that the short covering
bounce from Tuesday has now translated into a bit of fresh bargain hunting.
However, much better than expected earnings from HP Compaq and a timely
softening of energy prices seems to have fostered an inspired trek higher in
prices overnight. Many of the 2-day gains posted in the Asian equity markets are
quite impressive, with the JASDAQ posting the biggest gain in 4 years.
DOW
Critical resistance in the June Dow is 10,053 and that should fall early. Next
resistance in the June Dow comes in at 10,100 and that resistance level could
easily be taken out in the first hour of trade, especially if energy stats
released today foster additional weakness in energy prices. Once the Dow manages
a rise above 10,100 we would expect the market to attempt a return to the 10,200
to 10,450 consolidation zone.
S&P
Critical resistance in the June S&P comes in at 1101.80 but really critical
pivot point resistance comes in at 1102.50. The overnight rise has already
reversed a number of down trend signals and given the oversold status of the
market, we would not be surprised to see a rally to 1104.80 today.
FOREIGN EXCHANGE
US DOLLAR
It would seem like the Dollar is set for more
losses, as the trade seems to think that the US recovery is moderating and that
sharply higher energy prices might be doing the work of the Fed. In other words,
many think that the US Fed might not be on the cusp of hiking interest rates and
therefore the Dollar loses some of its long interest. Certainly the Dollar was
recently overbought and when one looks at the opposing currencies it is very
clear that they were extensively oversold. In short, the Dollar is in a weak
posture, partly because of the market is not as impressed with its recovery pace
and partly because of the ongoing geopolitical drag on the Greenback. The
primary drag on the long case is that the interest rate differential isn’t
expected to widen, as many thought it would around the May high. Near term
critical support is 90.54 and below there at 90.24.
EURO
The down trend pattern in the Euro remains in place
but that pattern could be changed if the June Euro were to manage a rise above
121.10. We continue to think that recent gains in the Euro are more of a
function of disappointment off US numbers, than they are off any perceived
change in ECB policy or economic condition. Close in resistance comes in at
102.30 and a key downside failure takes place with a slide below 119.20.
YEN
Solid optimism toward Japanese stocks and especially
strong interest in Japanese Bank stocks, seems to give the Yen a big boost.
While the Yen has significant overhead resistance, it has managed a surprising
spike up overnight. Any time one sees such a massive move against a pre-existing
trend, it is logical to expect technical short covering and follow through. Near
term resistance comes in at 89.00 and above there at 89.40.
^next^
SWISS
Surprisingly the Swiss is not showing upside gains
off the Dollar weakness and that really suggests that longs are not easily
pulled into the Swiss. Therefore, we would continue to be short looking for a
return to the bottom of the consolidation at 77.00.
BRITISH POUND
While the Pound has made an aggressive upside bid,
it really doesn’t break out of the down trend channel until it climbs above the
178.16 level. If we had to bet against the Dollar, the Pound would probably be
the currency to buy, as it has the strongest economy outside of the US economy.
CANADIAN DOLLAR
The big consolidation in the Canadian has apparently
discouraged the bear camp and without the presence of key US economic reports,
it is now possible for the Canadian to bounce more aggressively. Those that
bought the July puts should scramble to save long put premium, with a possible
reset in the puts seen once the C$ rises back to 73.00.
METALS
OVERNIGHT
London A.M. Gold Fix $380.20 +$2.20 LME
COPPER STOCKS 144,225 mt tons -500 tns COMEX Gold stocks 4.328 ml +56,030 oz
Comex Silver stocks 120.4 ml -154,656 OZ
GOLD
Apparently the gold market has ditched the sloppy
mantle it held yesterday but it certainly helps that the Dollar is sharply lower
and bordering on a more significant downside breakout. In our book the Dollar
kicks in another buying wave in gold if the June Dollar manages to fall below
pivot point support of 90.50. Surprisingly gold is higher in the face of
favorable international equity price action and that shows that the market can
rally without the combination of a lower Dollar and economic flight to quality.
SILVER
So far, the strong overnight action in gold hasn’t
prompted a rise in silver and that continues the divergence seen early this
week. In other words, investment interest isn’t exactly rushing back into
silver. The silver market does have an upward pattern in place but the market
seems to lack motivated buyers.
PLATINUM
With platinum prices holding at slightly higher
levels than the prior day’s close and Asian currencies firming, it is possible
that July platinum manages to re-test the $820 level. Off all the metals, the
platinum market should be able to get the most benefit off 2 straight days of
higher world equity prices. In order to maintain the recovery posture, July
platinum must keep closes above $797.
COPPER
With world equity prices showing an impressive
follow through to the upside, some of the extremely negative macro economic
views toward copper are tempered. Even Chinese copper futures managed to rise
after four days of declines and that hints at the chance of a short covering
rally. The fact that Chinese buyers showed up should give the market an added
incentive on the bounce and the July copper might be capable of rising to 118.30
and possibly to 120.00.
CRUDE COMPLEX
One can hardly be surprised by the profit taking
in the energy complex, when one considers the rate of gain posted over the last
two months. While the Press suggested that profit taking was the primary reason
behind the slide, we have to wonder if some change in the supply and demand
setup isn’t in the offing. While the market is certainly seeing a heavy flow of
favorable demand information, one should not discount the potential that Chinese
energy demand is set to contract slightly or that some change might be made to
the US supply situation.
NATURAL GAS
As we suspected natural gas fell much more
aggressively than the regular energy complex, partly because its fundamental
case was less impressive than the setup in the gasoline market and partly
because the small spec long was so excessively overbought. Furthermore with only
minimal cooling demand seen in the coming two weeks forecast, one can hardly
suggest that cooling demand is getting off to a record start. Given recent price
highs we think the natural gas market was on its way to factoring in stellar
demand.