Futures Point To A Stronger Open

INTEREST RATES

01/12 OVERNIGHT CHANGE to 04:12 AM:BONDS-4 The
Treasury market comes in to the session this morning poised for more gains, as
the weekend Press fanned the flames of economic anxiety that were produced by
the monthly payroll report. However, it would seem that the US stock market
might manage a favorable opening and that could mitigate the bullishness in
bonds slightly. There is an extremely heavy report slate this week, which might
be a good thing for the bear camp, as it will take a series of decent economic
readings just to countervail the payroll disappointment.

STOCK INDICES

01/12 OVRNIGHT CHG to 04:12 AM:S&P+260, DOW25,
NIKKEI na, FTSE+1 The stock market deserved to break down last Friday, partly
because it was overbought and certainly because the fundamental numbers were
disappointing. However, with slightly stronger pre-opening action this morning,
it would not seem like the bear camp is set to totally dominate price action.
Certainly, the economic pendulum is certainly tilted in favor of the bear camp
and it will take a decent showing from the regularly scheduled information to
first countervail the downward tilt, and then hopefully put prices back into a
favorable mode for the remainder of the January effect (which many think lasts
until January 15th).

DOW

Even if the market isn’t willing to maintain the recent bull tilt, we would
think that the downside action will be a controlled affair that is devoid of
high anxiety. Furthermore, the Dow has shown very consistent performance since
the November low and that should prompt buyers to enter the market after a minor
slide to 10,418, but a failure to hold above 10,400, could suggest a more
sustained decline. In short, the bull camp needs help from the headlines right
out of the gate this morning.

S&P

While the S&P is showing signs of rejecting the overnight lows, we get the sense
that the S&P remains vulnerable. If the Street isn’t given some ray of hope from
the early numbers today, we could see the March S&P slide back down to critical
support of 1115. Initially support is seen at the overnight low of 1118.40, but
it would seem like more profit taking is needed before a low is forged.
Considering the disappointment in the numbers last week, one would at least
expect the market to slide as it did in early December, when the last payroll
report disappointed the trade. In early December, prices were down for six days
ahead of the payroll report and then fell for two sessions after the report!
Therefore, we suspect another couple days of minor selling.

FOREIGN EXCHANGE

US DOLLAR

A new low in the Dollar simply mirrors the
disappointing fundamental track in the US economy. While the Dollar hasn’t been
tracking the fundamental ebb and flow, the US payroll reading from last week
simply makes it easier for the market to attack the Dollar. In our mind, soaring
US equity prices and periodic strong economic reports were the only thing
preventing many players from pressing the Dollar aggressively. In fact, now that
the interest rate differential looks to remain negative to the Dollar for the
foreseeable future, there should be more traders willing to sell the Dollar in
the hole. While the a G7 meeting looms on February 6th, it would not seem like
areas outside of the US are seeing their recoveries hindered. Certainly there
will be periodic dialogue that discourages the downside in the Dollar but we
don’t think this dialogue will rise to a level that manages to turn the Dollar
back up. Therefore, traders should continue to sell 30-40 tick rallies in the
Dollar.

EURO

With German November Industrial output coming in
well above expectations (with a +1.3% gain) it is clear that the up trend in the
Euro has not hurt growth prospects. Therefore, more gains are expected unless US
numbers really come in stronger than expected and even then, those numbers might
be discounted in favor of the readings from the Euro zone. Near term buying
support is seen at 128.18.

YEN

The BOJ has stuck to their guns and at least managed
to prevent a new high run. With all the other currencies launching into a strong
upward pulse, the BOJ must be throwing massive sums at the market and with the
US numbers softening, there is certain to be significant intervention required
in the coming sessions. We think that the bull camp will eventually prevail, as
the BOJ concedes and allows the yen to a new even higher trading level. Those
long should be patient.

SWISS

More gains as the European numbers solidify the
direction in the Swiss. In fact, as mentioned in other currencies, US numbers
simply make all other numbers look even better.

BRITISH POUND

While the UK industrial output reading wasn’t as
impressive as the German numbers, all that was needed, following the US failure
last Friday, was a number in positive ground and therefore the currency can
expect to rise of the news this morning. Therefore, the next upside target in
the Pound comes in at 185.60.

CANADIAN DOLLAR

We are actually surprised that the Canadian didn’t
make more ground off the relative strength of its payrolls. However, the
Canadian was significantly overbought after the run off the January lows and
might need a short rest and consolidation before moving to even higher ground.
Near term buying support is targeted at 78.19, objectives are 78.80.

METALS

OVERNIGHT

GLD+2.30, SLV+23.30, PLAT+5.00 London
A.M. Gold fix $428.20 +$5.40 LME COPPER STOCKS 413,950 tons -3,050 tons COMEX
Gold stocks 3.12 ml -899 OZ Comex Silver stocks 123.6 ml oz Unchanged

GOLD

The gold market starts the week out on a strong note
and is doing so without a significant Dollar slide. In fact, with silver bolting
higher overnight, it would seem that the Dollar action is a secondary element
driving prices this morning. While the COT report showed nearly 189,000
contracts net spec long, we have to assume that the market comes into the action
today moderately above that level, as prices have gained $5-$6 an ounce.

SILVER

It would appear as if silver is catching spillover
interest from those that wanted to be long gold but were a little put off by the
relative price level. The weekly COT report showed silver to have a net spec
long position of 88,000 contracts, which is right at the record level posted
last year. Therefore, we have to assume that silver comes into the opening bid
today at the largest spec long in modern history.

PLATINUM

Apparently the disappointing US economic information
is of little concern to platinum, as it looks to be prepared to flash into new
high ground this morning. Considering the momentum in silver and gold, platinum
should easily surge to $855. The weekly COT report showed only a moderate
increase in the net long leaving the market with more upside.

COPPER

Here’s a story from Dow Jones Newswires that sums up
copper market prospects, ” Asian copper prices soar as Singapore copper stocks
are completely wiped out”. In other words, the demand lion in Asia has siphoned
off supply and buyers are left to chase prices. While the overnight US action is
showing slightly weaker prices off the extreme overbought status last week, the
bias is still up.

CRUDE COMPLEX

The market closed firm last week and would appear
to be poised to forge more gains in the near term. While the cold weather seemed
to be the driving force behind the action last week, it was only late in the
week that cold weather outside of the US added into the equation. However, after
the close Friday the market saw comments from the EIA, which will probably keep
the speculative long interest high in the coming session.

NATURAL GAS

The natural gas market took some guidance from the
regular energy complex last week and with cold weather expected at the end of
this week the bulls would seem to have full control over prices. The weekly COT
report showed the funds to be net short, with the small specs still moderately
long. In other words, the natural gas market position is hardly changed despite
the sharp run up off the November consolidation lows.