Futures Point To A Stronger Open
INTEREST RATES
We are really interested in the overnight rise in
Treasuries, as the market is getting into a zone where a fresh futures sale
might be implemented. The overnight news would seem to be a little bearish to
Treasuries, with the metals markets thinking that the Chinese slowdown threat is
overstated, energy prices lower and international equity prices generally pretty
strong. Certainly the US economic numbers on the week were very disappointing
and the forward report slate is nearly empty.
STOCK INDICES
We think macro economic conditions have improved
enough over the last 24 hours to allow the stock market a further short covering
bounce. The reason we label the coming action as a short covering bounce is that
we expect fresh buying to be limited. We also think that the bull camp lacks a
definitive cause to throw prices into an entrenched up trend pattern.
DOW
While the short term pattern is pointing up, we are not sure how much momentum
is going to be generated and if the gains will hold into the close. Nonetheless
we suspect that the June Dow could rise to 10,046 before significant resistance
is encountered. In the event that the energy complex shows signs of heavier
selling, maybe the June Dow manages a rise to even higher resistance of 10,090.
It would not be a good thing to see prices fall back below 9,952 today.
S&P
Certainly the June S&P has solid support down around 1086 and the market could
easily rally to 1096.80 today and wouldn’t even violate resistance on the
charts. Short term technical indicators are also in the most significant buy
modes, since the late March low timing. The top of the down trend channel comes
in all the way up at 1117.60 today.
FOREIGN EXCHANGE
US DOLLAR
The Dollar has failed again and without any
scheduled information to discourage the recent weakness, it is possible that the
June Dollar falls to lower support around 90.00. While the macro economic
outlook globally seems to have improved, it is clear that the view toward the US
has changed. We think that the trade is downgrading the potential for a June
rate hike, as the soaring energy price action has the Fed holding off on
interest rates. The rise in the US Treasury market seems to confirm the downside
thrust in the Dollar, under the theory that no rate hike is ahead. We also think
that the US numbers were just too weak this week, to give the Dollar advantage
and that could be the dominating issue behind the break. Since there are no
critical US reports to be released until the middle of next week, the bears seem
to have a window to attack the Greenback from the short side. Trend line support
off the February to present uptrend channel comes in all the way down at 89.65
today and at 89.72 on Monday.
EURO
An uptrend channel resistance line is violated today
in the June Euro with a rise above 120.66. As we suggested early this week, the
Euro wasn’t going to run higher off its own numbers, but it could run higher off
a failure in the US numbers and that is what happened. The short term trend is
pointing up, but we want no part of the risk and reward of being long the Euro
from current levels, especially since there isn’t a solid supporting fundamental
argument.
YEN
Favorable dialogue from the BOJ overnight with
respect to household spending improvements and the promise that the BOJ will
maintain easy money policies, gives the Yen a major lift. With the Yen already
violating several technical resistance points on the charts and the fundamentals
pointing upward, one should expect more gains ahead. Unfortunately for the bear
camp, there is very little resistance in the Yen and that could facilitate
surprising gains.
^next^
SWISS
So far, the Swiss has managed to rise above critical
technical resistance on the charts, but a rise above 78.82 could spark long term
short covering off the 5 month old down trend pattern.
BRITISH POUND
Short term technicals are in a buy mode and with
public sector borrowing rising over the prior month, it is clear that the UK
economy is still strong. Considering the Dollar weakness, we have to think that
the Pound will forge more gains. Near term resistance comes in at 179.80 and
again at 179.98.
CANADIAN DOLLAR
The Canadian might be in an uptrend pattern. Short
term technical indicators are in a buy mode and near term resistance comes in at
73.08 and 73.28.
METALS
OVERNIGHT
London A.M. Gold Fix $382.25 +$1.70 LME
COPPER STOCKS 141,450 mt tons -725 tns COMEX Gold stocks 4.331 ml -3,441 oz
Comex Silver stocks 120.4 ml -5,964 oz
GOLD
With the Dollar making a new low for the move
overnight, the trade turned up its long interest for gold. We suspect that the
market was disappointed with the pace of US numbers this week, which many think
could lower the odds of a US rate hike. We had hoped to see a break to $377 in
the August contract but with the overnight Dollar failure and a thin US report
slate, there might not be much to derail the gold strength expected into the
opening this morning.
SILVER
Like the gold market, short term technical
indicators in silver are in buy modes. However, we are a little concerned that
silver has been acting more like a physical commodity than an inflation driven
or financial driven precious metal. Near term support on the chart comes in at
$5.77 in the July contract, while an upside breakout takes place with a rise
above $5.94.
PLATINUM
As we suggested in silver, seeing the Chinese show
some interest in base metals overnight, should lend some support to platinum.
Short term technical indicators are in a buy mode and we see little near term
resistance in July platinum until the $820.8 level. It would seem like the July
contract has forged solid long term support at $797.
COPPER
We had been expecting to see copper slide back down
to significantly lower levels but news overnight that China showed some interest
in base metals and possibly bought copper is the bell ringer for the bulls.
Shanghai copper stocks fell by 4,146 tons and that simply adds to the short
covering/fresh buying pattern in place this morning. The fact that the overnight
trade is operating off the idea that the Chinese slowdown threat was overblown,
is a big issue that has already sent July copper prices to what we thought would
be heavy resistance on the charts.
CRUDE COMPLEX
The energy market managed a relatively quiet
session Thursday and for a change didn’t charge higher into the close. Certainly
the market is technically overbought and vulnerable to profit taking, but the
potential for weekend supply problems makes getting short a risky venture. The
OPEC President did suggest during the session Thursday, that it was too late to
increase production for June but the market didn’t seem to rally off that
revelation.
NATURAL GAS
The weekly natural gas inventory report showed an
increase of 85 bcf, which is a large injection compared to the readings seen at
the beginning of the injection season. The natural gas market continues to
exhibit excessive volatility and with some near term support violated at $6.41,
it is possible that July slides to even lower support down around $6.29. In
order to right the ship and avoid further corrective action, July crude will
have to provide solid leadership to natural gas early today.