Futures Point To A Stronger Open
INTEREST RATES
01/20 OVERNIGHT CHANGE to 04:20 AM:BONDS-5 The
Treasury market could be at a crossroads, with the BOJ of Japan cutting interest
rates, the Yen falling and the market attempting to digest some bearish Fed
dialogue from last week. In fact, looking back at the Fed dialogue last week, it
is clear that the Fed thinks the last unemployment report wasn’t a fair
representation of the state of the US economy. In other words, while the Fed
remains on hold, with respect to interest rates, they don’t think the US economy
is that far away from creating sustained job growth.
STOCK INDICES
01/20 OVRNIGHT CHG to 04:20 AM:S&P+170, DOW19,
NIKKEI +66, FTSE+1 Despite the lackluster view on the economy that dominates the
US Treasury market, the world continues to maintain a positive attitude toward
stocks. Overnight the Nikkei managed to post a decent rally that was helped
along by a Bank of Japan rate cut. In other words, the BOJ made it clear that
they were going to do everything possible to prevent deflationary conditions
from returning.
DOW
The grind higher looks to continue, especially with the recent COT report
showing the small spec and fund position to have been net short, as of last
Tuesday. In fact, unless the Dollar falls sharply, or energy prices explode, we
see little sustained selling interest in the Dow. In conclusion, expect a slow
upward grind, with first near term resistance pegged at 10,665.
S&P
Another new high was posted overnight and with the small spec long, only average
and the funds holding a moderately large net short, the technical setup is
decidedly bullish. With a number of large stocks set to report earnings and IBM
already lending a very positive spin to earnings expectations, the path of least
resistance is up. In fact, last week IBM officials made the statement that, “the
high tech slump is overâ€. Therefore, the market expects to be supporting by
company reports this week. Near term upside targeting in the March S&P comes in
up at 1146.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is slightly lower this morning, despite a
favorable tilt toward US stocks. Apparently the trade was expecting more
aggressive statements from the ECB regarding the Euro and that didn’t happen,
which in turn applied some pressure to the Dollar. In other words, after the
recent ECB dialogue, talked against the soaring Euro, the stance that the ECB
favors a “stabile†Euro sparked some selling interest in the Dollar. The fact
that the BOJ cut interest rates overnight was certainly a surprise and that
undermines the Yen which in turn should have given support to the Dollar.
However, in the overnight action no such Yen support in the Dollar was detected.
Therefore, the Dollar might still be able to mount some near term gains, but it
is certainly starting the week out on a negative note. Furthermore, with the
Dollar significantly overbought on short term basis last week, it is possible
that a correction to 86.73 is seen. However, if the ECB doesn’t come out with
more aggressive statements, we wouldn’t be surprised to see the Dollar slide all
the way down to 86.30.
EURO
The fact that ECB officials seemed to have changed
their tone toward the soaring Euro, caused a number of traders to rush in and
buy the Euro overnight. In other words, the ECB seems to be willing to tolerate
current Euro levels and that simply puts the January correction into question.
In fact, we now have to consider last week’s low, as a critical low, unless
there is a clarification put out by the ECB. In short, unless the ECB actually
threatens to intervene, it might be possible to see the Euro return to the
recent highs! Unfortunately for the bull camp, German ZEW numbers released
overnight weren’t strong enough to give the bull tilt an added lift.
YEN
While the surprise rate cut undermines the Yen, we
seem to doubt that the impact will be sustainable. Furthermore, with the ECB
making statements that weaken the Dollar, it would seem even more unlikely that
the Yen will make a consistent bid lower. Near term chart support in the Yen
comes in at 92.83 and we would become an aggressive buyer at that level looking
for a return to the top of the consolidation. Those that sold a June Yen and
bought three calls should bank a profit on the futures and hold the June calls
naked.
SWISS
Because of the ECB statements overnight, the Swiss
is given a distinct lift. In fact, we see nothing preventing the Swiss from a
return to the recent highs.
BRITISH POUND
Considering the clear definition in the Pound
uptrend (before the recent washout) it is possible that the Pound mounts an
aggressive bounce off the news offered up this morning. In fact, we see the
Pound reaching up to 181.82.
CANADIAN DOLLAR
The Canadian was technically damaged with the mid
January washout, but could the market looks to lay the bear tilt aside for a
couple sessions and mount a minor corrective bounce. In other words, it doesn’t
feel like the Canadian is prepared to return to the aggressively bullish tilt
seen in late December but it does have the potential to bounce. Corrective
targeting is seen up at 77.48.
METALS
OVERNIGHT
GLD+2.10, SLV+6.50, PLAT+2.10 London A.M.
Gold fix $408.30 -$2.00 LME COPPER STOCKS 394,175 tons -5,075 tons COMEX Gold
stocks 3.37 ml +175,375 oz oz Comex Silver stocks 125.3 ml Unchanged
GOLD
With the Dollar starting the week out a little
lower, gold might be able to consolidate and discourage the recent selling tilt.
However, until the trade sees proof that the Dollar hasn’t bottomed, the bears
have a slight edge. The weekly COT report showed a net spec long of 193,000
contracts and that reading was taken about $7 off the January high, which means
that the net spec long position might have reached 197,000 to 200,000 contracts
around the highs.
SILVER
The silver seems to have found solid support and
rejected the consolidation support level of 618-620 basis the March contract. In
fact, the silver might have initial support at 632 this week instead of the 618
level seen last week. The weekly COT report showed the net spec long position in
silver to be 89,000 contracts and the market comes into the session this morning
below that level, so it is clear that the technicals were balanced with the
recent steep correction.
PLATINUM
The platinum market comes into the week a bit
undermined from the action last week but apparently fully capable of maintaining
a bullish tilt. Apparently the bull camp in platinum is playing up the idea that
Chinese jewelry demand might be something that keeps the supply and demand
situation in tight standing. Many also think that steady demand growth is coming
from global pollution control and therefore the bull camp seems to have more
ammunition than the bear camp.
COPPER
We are not sure whether to believe the headlines or
the overnight chart action, as the Highland Valley Mine came to a tentative deal
but yet prices are sharply higher overnight. With the market streaking toward
fresh contract highs and showing no reaction to bearish labor developments, it
is clear that either Chinese buying interest or speculative fervor is driving
prices up. The weekly COT report showed a net spec long of 45,000 contracts,
which is now understated but also is not a reading that would preclude
additional gains.
CRUDE COMPLEX
The energy market is facing a critical window
ahead, as many OPEC members are convinced that they will need to countervail a
daily surplus in the coming months. Certainly many OPEC members are aware of the
current over production of 1.5 million barrels per day, but with the world
moving into an anticipated supply glut window there is a partial limiting of the
bull case being seen. However, other members of OPEC realize that world oil
inventories are at 20 year lows and a cut now could spark prices to extreme
levels.
NATURAL GAS
The recent cold weather certainly pulled the bull
camp out of the frying pan. In fact, the rally Friday simply bailed out the bull
camp. In fact, if the natural gas had failed to respond to the big crude oil
rally Friday, the bear camp could have gained significant confidence.