Futures Point To A Stronger Open
INTEREST RATES
After a significant overnight probe lower, June
bonds have managed to recover. We suspect that sharply higher equity prices and
the prospect for lower energy prices is something that favors a continuation of
the recovery. However, at times it seems like the Treasury market is fixated on
the posture of the Fed and not the overall view on the economy.
STOCK INDICES
While we might have been disappointed with stock
market action last week, the general tilt in prices is still pointing up and
there is the prospect for better macro economic conditions. With the Saudi Oil
Minister aggressively talking down energy prices with the promise of 2.5 million
barrels of extra production, the drag of high oil prices could abate.
Unfortunately, the stock market saw some slightly anemic US economic reports
last week and might have reason to fret over the growth pace.
DOW
Given the overnight action it would seem like the June Dow is poised to test the
top of the recent consolidation up at 10,053. However, the market will need to
prove it can muster aggressive long interest, as it failed to sustain a big gain
last Wednesday on a similar improvement in the macro economic case. Near term
critical support is seen at 10,003 and a return to 10,100 is needed to turn off
the overall down trend status.
S&P
The S&P has managed to breakout above near term resistance and might be primed
to rise to 1102.50. The 1104.80 level is another critical pivot point that the
market needs to close above to alter the down trend pattern. The weekly COT
report showed the net spec long position to be 31,000 contracts, which is a very
low spec long position. In other words, the market has the technical capacity to
rally and seems to have the fundamental impetus to rally, but we are generally
skeptical that a massive amount of volume is going to throw itself behind the
long side. Pushed into the market we would have to long, but one needs to
remember the reversal last Wednesday. Prices have to go a long way to reverse
the trend (moving average reversal is 1119.05, trend reversal is 1137.70).
Consistently lower energy prices should allow step-wise gains in the S&P, but
the market will need to see constant gratification from lower energy prices to
mount a big upside run.
FOREIGN EXCHANGE
US DOLLAR
Apparently the Dollar managed to recoil aggressively
away from the 40 day moving average and with the prospect of lower energy
prices, maybe the Dollar can mount some gains and return to the old uptrend
channel that has been in place since the February low. However, in order for the
Dollar to maintain the overnight gains and regain the bull market status, we
think that oil prices will have to slide aggressively and or the US numbers will
have to firm up. After all the main driving force behind the Dollar rise is the
idea that its economy is superior to the Euro zone and that the US will see
higher interest rates sooner than other areas. We have to wonder if the US Fed
has been holding its higher interest rate dialogue down, due to the presence of
soaring energy prices, as a little more hawkish talk from the Fed might provide
the Dollar with an added lift. With the overnight rise in the Dollar, it has
managed to return to the uptrend pattern. The Dollar must maintain closes above
the moving average at 90.37 and must see lower energy prices to resume its
upward motion.
EURO
The Euro comes into the action this morning below
critical moving averages and into critical chart support of 119.23. In order to
see the trend shift up, the June Euro would need to climb above 120.25. We would
not be surprised to see the June Euro slide toward consolidation support of
118.71, but that only happens in the wake of higher US equity prices and
moderately lower energy prices. The Euro zone just doesn’t have the economic
report flow to rationalize a consistent track higher.
YEN
While the Yen seemed primed to rise sharply last
week, some of that upside momentum has waned into the opening this morning. In
fact, maybe the market was expecting something from the G8 meeting that would
propel the Yen higher, but into the opening this morning we detect weakness in
the Yen. Soft Japanese supermarket sales in April were blamed on new tax laws
but the net spin from the Japanese economy is not strong enough to lift the Yen
aggressively. In order to shift the near term trend down in the Yen we will need
to see the June contract slide below 88.58 this morning.
^next^
SWISS
The Swiss attempted to rise last week and found
little volume to alter the down trend pattern. In fact, seeing the Swiss slide
below the 40 day moving average at 77.49 might shift the trend down and
ultimately push the Swiss down to 76.94.
BRITISH POUND
The Pound has moved right up into critical moving
averages around 179.60 and might be primed to return to the top of the down
trend channel at 179.67. Because the UK economy is in relatively good shape, the
potential for lower energy prices might give its economy a salient lift.
Therefore, we detect an upside potential, but we also retain a skeptical
posture.
CANADIAN DOLLAR
Apparently political developments in Canadian are
not a negative factor for the currency. Therefore, it is clear that sentiment in
the Canadian has indeed shifted and the trend in the market is pointing upward.
Near term critical resistance comes in at 73.04 and support comes in at 72.78.
METALS
OVERNIGHT
London A.M. Gold Fix $383.85 +$1.60 LME
COPPER STOCKS 139,750 mt tons -1,700 tns COMEX Gold stocks 4.350 ml +18,175 oz
Comex Silver stocks 120.4 ml -1,935 oz
GOLD
While it might be difficult for gold to maintain all
of the recent gains with a slightly higher US Dollar, it would seem that
sentiment toward the metal has improved. While the Dollar meanders back and
forth, one has to take last week’s news on China as a net positive at least
until there is reason to fear more in the way of tightening from China. In order
to shift the Dollar action into a net positive for gold, the June Dollar Index
will have to fall back below a critical trend line at 90.23.
SILVER
The silver has fleshed out an extremely narrow range
of trade for most of May but has maintained a generally positive tilt since the
May 10th low. The net spec long in silver was nearly 60,000 contracts last week
and that is only a 2,000 contract decline from the prior week. Therefore, silver
seems to be holding a relatively larger long position than we would have
expected considering the massive April slide.
PLATINUM
The platinum market is certainly making a positive
statement with an upside breakout overnight and the highest trade since late
April. As long as the trade is optimistic about Asian economic activity, the
outlook for platinum demand should be enough to drag platinum back up within the
last two months trading range. The weekly COT report showed a minimal net spec
long and that should provide the market with some reserve buying fuel.
COPPER
The Chinese market started out weaker but managed to
close higher, which is a slightly positive sign for the US action. With the
improved Chinese outlook the copper market has new life but we suspect that some
in the market will be skeptical about Chinese demand until it shows itself on a
periodic basis. The weekly COT report showed the net spec and fund long in
copper to be 11,000 contracts, which was a reduction of 1,600 contracts.
CRUDE COMPLEX
The energy complex looks to start the week out on
a weaker tone as the Saudi Oil Minister is apparently promising to supply enough
oil to the world market to deflate prices. While the Saudi tilt might meet
significant opposition from other OPEC members in the June 3rd meeting it would
seem like the worlds biggest oil producer wants to get an additional 2.5 million
barrels per day to the market. The G8 also pressed OPEC for more supply in their
weekend meeting and with the Saudis attempting to sooth consumers fears, the
bear camp might be able to control prices.
NATURAL GAS
We are actually surprised that the July natural gas
managed to avoid a steep correction given the action in crude oil late last
week. With the COT report showing the Natural gas to have a combined small spec
and fund long of 42,000 contracts, it might be considered more overbought than
crude oil. Critical chart support in natural gas comes in at $6.38 and a major
downside failure might be in effect with a slide below $6.30.