Futures Point To A Stronger Open
INTEREST RATES
01/08 OVERNIGHT CHANGE to 04:08 AM:BONDS-9 Even
without the benefit of additional economic information, the Treasuries showed
following through buying interest Wednesday, which would seem to point to the
presence of a near term up trend pattern. It also appeared that interest in cash
market developments gave the Treasuries an additional lift after the opening
rally yesterday but the market comes into the session today, below the highs
posted around mid session yesterday. Therefore, the market isn’t completely
enamored with the bull case, possibly because investors were showing significant
interest in the high tech sector and retailers seemed to claiming the best
holiday sales in 4 years.
STOCK INDICES
01/08 OVRNIGHT CHG to 04:08 AM:S&P-40, DOW2,
NIKKEI +79, FTSE+31 In the absence of news capable of sending prices down, the
stock market continues to claw its way to new highs. Certainly, favor toward the
tech sector, combined with ongoing favorable holiday sales revisions to push
investors into action Wednesday. However, we think that the gains Wednesday were
restrained because of the coming unemployment numbers.
DOW
The Dow futures made another strong upward probe in the overnight action, with a
move to new highs, but prices have come off that high quite significantly into
the opening. Critical support in the March Dow should hold at 10,480 but lower
support at 10,398 could be tested if the initial claims readings are much weaker
than expected. The trend remains up but the market won’t ride through the next
24 hours smoothly unless the numbers are acceptable.
S&P
The S&P appears to be poised for more contract highs, as volume Wednesday
surprised a few traders and lends some credibility to the recent rally. Unlike
the Dow, the S&P could be confronted with slightly more aggressive back and fill
action in the coming 24 hours. We suggest that the trend remains up but that
support might be tested at down 1122.20 and 1115.80.
FOREIGN EXCHANGE
US DOLLAR
The Dollar is certainly showing signs of a technical
bottom, despite the fact that the fundamentals appear to be totally unchanged.
While the market has not paid attention to the US Administration in the past, it
would seem to be paying attention to Treasury statements overnight that the US
still favors a strong Dollar policy. Maybe the trade is covering shorts ahead of
the monthly payroll report, just in case the number shows a massive improvement,
which in turn could be expected to cause a change in Fed policy. We think the
market is out on a limb with the current bounce and that the downtrend will
resume once the dust settles on the monthly payroll report. However, in the near
term there is little to keep short covering buying from pushing the Dollar even
higher. We now see the March Dollar rising to 87.15 to 87.20. Traders should be
prepared to attack the short side of the Dollar but should buy puts, or wait
until after the payroll report number is floated before moving in with market
orders to sell.
EURO
The trade is waiting on dialogue from the ECB this
morning but we doubt that the central bank will make a key statement. In fact,
with the Euro falling well off its recent high, the ECB should leave well enough
alone. We suspect that the Euro can slide down to 125.38 without news and to
124.80 with a favorable US economic report flow! The trend is up but many longs
are taking profits rather than hold through the coming 24-hour volatility
window.
YEN
While the headlines haven’t confirmed BOJ
intervention, we have to think that it has been present in significant force
over the last few sessions. Now however, it would seem that the upside pressure
is mitigated in the Yen, because of technical considerations ahead of the key US
monthly report. Therefore, it might be possible to see the Yen slide back to
94.00 before finding a firm bottom. If the US numbers are very strong the Yen
could even slide to 93.35, at which time those that got short the Yen and long
multiple calls should be exiting the short futures.
SWISS
Like the Euro, the Swiss is into a technical
correction that could extend down to 79.84 and possibly 79.50, if US numbers are
really strong Friday morning.
BRITISH POUND
The Pound is showing its bullish mettle by the lack
of a steep technical correction in the face of a moderate Dollar bounce. The BOE
left interest rates steady and therefore the market is left in the generally
bullish track present for the last 3 months. Near term support is pegged at
180.25, the trend is up.
CANADIAN DOLLAR
The persistent Dollar strength is causing increased
technical selling in the Canadian, as a number of key support levels were
violated. However, the rejection of pricing below 77.15 was apparent and that
might mean that the Canadian has already found a critical low.
METALS
OVERNIGHT
GLD-3.00, SLV-2.80, PLAT+0.10 London A.M.
Gold fix $418.10 -$2.55 LME COPPER STOCKS 421,900 tons -4,175 tons COMEX Gold
stocks 3.12 ml Unchanged Comex Silver stocks 123.6 ml oz -966 oz
GOLD
The Dollar chart has a look of a market attempting
to reverse the downtrend from a technical perspective but the fundamentals would
seem to be unchanged. We also see a number of stories on the newswires hinting
at a top in gold. One story suggests that a lack of “de-hedging” will temper the
fundamentals in gold, while the other negative story was a simple analyst
prediction that gold is about to peak.
SILVER
With the gold market showing vulnerable action on
the charts, the silver market will be in for a critical test. Recently silver
has shown some divergence with gold but we don’t think that the market can
totally de-link itself from gold. Furthermore, silver was also a market that was
extensively overbought and therefore a trade below $6.20 could unleash technical
stop loss selling.
PLATINUM
Unlike silver, the platinum market has managed a
fairly independent trade to gold and also unlike silver, the platinum market
does have tight supply and firming demand. Therefore, a general liquidation in
gold and silver will certainly undermine platinum but in the end, may not be
able to dominate sentiment. In any regard, platinum prices are $170 an ounce
above the September lows and that is a very significant upward pulse and
therefore one can’t rule out a stiff correction off profit taking selling.
COPPER
The copper market flatly rejected the liquidation
tilt in place yesterday morning, partly because of ongoing tight supply but
mostly because of persistent demand interest. With Chinese prices firm overnight
and the trade unaffected by the second Chinese SARS case, prices look to climb
back to the recent highs. However, we would be very interested in the weekly
inventory readings from Shanghai Friday morning, as that will give some sense of
where Chinese supply and demand is headed.
CRUDE COMPLEX
01/08 OVERNIGHT CHG to 04:08 AM:CRUDE+17,
HEAT+39, UNGAS+44 The weekly API report was disappointing for the bull camp as
the product stocks increased significantly and that reduces concerns of product
tightness right into the start of the main winter deep freeze. As we indicated
in the written information yesterday, we suspected that some of the recent crude
stock declines were the result of winter rebuilding of the product inventories.
However, before one becomes too bearish toward the energy complex, realize that
crude stocks stand at a very tight 267 million barrels, which compares to year
ago levels of 275 million barrels.
NATURAL GAS
We are actually a little surprised that natural gas
prices finished weak on Wednesday, especially with the weather mostly supportive
but it is clear that the regular energy complex was driving sentiment in natural
gas. The fact that the western half of the US will see mild temps into January
21st, partially offsets the bullish cold weather forecast in the East and leaves
the market close to a fundamental balance. Expectations for the weekly inventory
report call for a draw of 77 bcf and that just isn’t enough to throw prices
above the recent highs.