Futures Point To A Stronger Open
INTEREST RATES
01/28 OVERNIGHT CHANGE to 04:28 AM:BONDS-1 The
Treasury market is certainly seeing a bearish shift in the scheduled numbers and
the performance in the stock market on Monday and Tuesday certainly forced some
longs out of position. With a critical durable goods report this morning,
expected to show a moderate decline, the market might be set up for more
weakness but one might note that the expectations for the report are pretty
high, considering the prior reading in durables. However, some might argue that
the previous decline of 2.5% makes it easier to post an increase for the month
of December.
STOCK INDICES
01/28 OVRNIGHT CHG to 04:28 AM:S&P+240, DOW25,
NIKKEI -75, FTSE+18 While the stock market continues to get favorable
fundamental information and has made a new high this week, the technical action
is showing a little more weakness and volatility than one would expect in a
clearly defined bull market. In fact, some traders are really concerned that the
failure to make another new high on Tuesday indicates a near term top in
pricing. It is also clear that the overnight slide violated several minor
support points on the charts.
DOW
After an overnight low of 10,544 in the March Dow, we have seen a fairly
impressive bounce. However, considering the magnitude of the decline off the
Monday high, it is clear that volatility is increasing. In fact, seeing the
March Dow fall back below 10,551 could be very damaging technically and with the
Fed speaking today, we almost feel like the chance for bad news is high. If the
Fed says the economy is recovering, that could spark talk of higher rates, while
comments that express concern for the pace of the recovery, would certainly be a
discouragement for a market that has recently posted a series of new highs. The
trend is up but the risk of being long has increased slightly. Those not in can
buy breaks!
S&P
The trend in the S&P is up, but seeing a return to the overnight pivot point of
1141.60 would not be a positive development. Some Fed watchers are expecting the
Fed to change their statement of risk, to one that suggests a slightly higher
risk of inflation. However, with the Fed early this week suggesting that a low
Dollar isn’t contributing to inflation, US holiday numbers good but not overly
strong and the last payroll reading soft, we are not sure that the Fed will
change anything. In the end, the odds are low the Fed will change, but with
stock prices significantly above the levels seen in early January, the risk to
longs is increased. In conclusion, we wouldn’t be long from the overnight highs
but on a break to 1140.20 we would enter fresh long plays. Realize that Fed
statements could cause sharp and short lived price swings late in the session
today, but in the back of your mind, realize that the market has been able to
rally aggressively off the theme that interest rates were going to remain on
hold! Buy a no change statement or buy a break to 1140.
FOREIGN EXCHANGE
US DOLLAR
There are some economists that expect the Fed to
begin changing their statement of risks, but if one were to go strictly off the
economic numbers released since the last Fed meeting, it is certainly not clear
that the US recovery is gaining momentum. Considering the recent attempt to
rally in the Dollar, seeing a chance of higher US rates would certainly cause a
massive pulse up in the Dollar. In fact, with the market fresh off the idea that
the ECB might lower rates, the Fed meeting today takes on added significance. We
have to think that the US Administration is against a rise in the Dollar, but we
are not sure that the Fed considers the Dollar in their decisions. In our
opinion, the Fed will present a big surprise, if they hint at future rate hikes
and therefore we are inclined to discount the chance of a rally. However, if the
Fed does hint at higher rates, one shouldn’t underestimate the amount of short
covering that could take place in the Dollar. Seeing the Dollar rise above 87.36
could signal a change in fundamentals and technicals, otherwise we think that
path of least resistance is still down.
EURO
An improvement in Italian business confidence was
offset by a level employment report from Spain. Because the FOMC meeting in the
US, the Euro will look toward the US for guidance today. Early US numbers today
could apply a little pressure to the Euro, but a rise above 126.13 in the Euro
might alter what appears to be a slightly negative near term setup. As suggested
in the Dollar comment, the chance of lower European rates and higher US rates is
not something to take lightly. The odds are low of a US change, but the
ramifications of a change, on the Euro, would be quite significant.
YEN
The BOJ might be taking a different angle toward
intervention with suggestions overnight of increasing their gold holdings. Maybe
the BOJ is going to add to their intervention efforts, by selling Yen and then
buying gold in the US! In the end, we think the BOJ needs an upside swing in the
Dollar just to avoid an upside breakout. In fact, getting the Dollar above the
87.36 level is very critical to the BOJ. On the other hand, a Dollar back below
86.38 today could be the catalyst for the bulls in the Yen.
SWISS
We don’t like the chart setup in the Swiss. In fact,
a decline back below 80.28 could spark more intense selling in the Swiss.
BRITISH POUND
The overnight action in the Pound hints at a return
to the recent highs. The Pound looks so strong that negative political
developments overnight aren’t even a consideration for the bull camp. Minor
resistance is seen at 183.34, with the afternoon US Fed meeting an issue to keep
an eye on.
CANADIAN DOLLAR
The negative chart pattern continues and we are not
sure what the Canadian needs to turn the equation around. Maybe a strong Dollar
will actually support the Canadian, as that would alleviate export concerns. In
the near term, the path of least resistance appears to be down.
^next^
METALS
OVERNIGHT
GLD+0.80, SLV-1.00, PLAT-0.10 London A.M.
Gold Fix $410.70 -$6.70 LME COPPER STOCKS 372,850 -5,375 tons COMEX Gold stocks
3.50 ml +59,337 oz Comex Silver stocks 124.8 ml + 65,017 oz
GOLD
The gold market is certainly battling against a
liquidation tilt and with the Dollar currently 160 points below its January
peak, the bull camp holds out hope that the recent flare in the Dollar was a
temporary development. Certainly seeing the Japanese Finance Minister hint at an
increase in gold reserves, discourages the shorts into the market off the recent
German central bank comments. The Minister of Finance from Japan also suggested
that Japanese gold holdings are low when compared to those held by the US.
SILVER
Following the sharp upward adjustment yesterday, the
silver market has certainly cleaned up its psychological standing, as late last
week the market was on the ropes. For the silver market to be able to pull back
in fresh buyers, following such a strong technical beating really shows that the
bull camp has resolve. While we still can’t define the specifics of the
fundamental bull case in silver, one can’t fight the up trend.
PLATINUM
If silver is being driven by Chinese jewelry demand,
then we are a little disappointed that platinum didn’t get a similar lift over
the last two sessions. In fact, given the spread of bird flu, platinum could see
some slightly negative impacts off the whole Asian demand outlook. Platinum
would make an upside breakout with a trade above $856.5 but at the same time
would also make a failure with a trade below $848.
COPPER
So far the copper market hasn’t gotten much of a
lift off the idea that a Papua New Guinea mine would see its output reduced over
the coming two months, due to technical problems at that facility. We also have
to think that the bird flu issue in Asia is causing some would be buyers to
stand back from the market. With the tail end of the Chinese holiday also
impacting the market, it isn’t surprising that the market is drifting in a
profit taking posture.
CRUDE COMPLEX
The energy complex remains under pressure, as
traders adjust positions ahead of the February product expiration at month end,
which is keeping the markets in a weakened technical position. While the
fundamentals for the crude market are relatively supportive, since US stock
levels are tight, the March contract’s failure around the $35 on the last 6
attempts is technically bearish and no doubt frustrating to the bills. With
crude stocks below the critical 270 million barrel level and OPEC likely to keep
production quotas unchanged, one would think March crude oil would be trading
over $35, if it were not for the weakness in the product markets.
NATURAL GAS
March natural gas remains on a downward track, as an
easing of sub-zero temperatures should ensure plenty of supplies for the rest of
the winter season. Early estimates for this week’s gas stocks report is for a
150 bcf to 200 bcf draw. However, we would think to inspire a minor short
covering rally beyond Monday’s highs, stocks would need to decline over 250 bcf
(that wouldn’t be a shock considering the severe cold of the last two weeks).