Futures Point To A Stronger Open
INTEREST RATES
The Treasury market continues to coil around
107-26 to 107-28 and one could suggest that the gains last Friday, were overdone
but that the market has now consolidated most of those gains and has found solid
support. However, the surprising improvement in initial claims and ongoing
claims yesterday certainly provides a measure of hope for the bear camp in
Treasuries, but in order to break up the bull trend in place since the May lows,
the market will have to see more favorable economic reports. In fact,
considering the potential negative impact of new terrorism fears, one might
expect consumer confidence to weaken and the view on the recovery to sag.
STOCK INDICES
We suspect that the path of least resistance is
down for stocks as the macro economic look isn’t stellar, earnings haven’t
inspired buying and most importantly terrorism concerns have been renewed and
oil prices are rising again. However, in the early action today, the tone of the
market has temporarily improved because of GE earnings. Fortunately the
technical condition of the market is mostly oversold and that also gives the
bulls some help.
DOW
The market is oversold from a short term perspective and is also overdone from
an intermediate time frame. In fact, after the close today, the market will get
confirmation that the small spec and fund positioning in the Dow futures is
significantly oversold and that position reading will be significantly unstated
due to the declines since that report was measured. Seeing a rise back above
10,231 today could turn a number of short term indicators up. In short, we see
the scope for a rally but we haven’t really noted a distinct improvement in the
macro economic condition (unless the market really embraces the GE earnings)
that would produce something more than temporary short covering bounce.
S&P
Like the Dow, the S&P should register a significantly oversold condition tonight
in the COT report. Because of the favorable GE earnings we suspect that the S&P
will attempt to bounce but we are not ready to suggest that the market has
forged a key low. In fact, the trend in the S&P doesn’t turn up until the
September contract manages a close above 1119.60. In order to call for a firm
low, we need a classic reversal signal or something significant from the macro
economic or fundamental front and we haven’t seen that indication yet.
FOREIGN EXCHANGE
US DOLLAR
While the Dollar has managed to reject another
downside probe overnight, the Dollar did make another new low for the move. We
have to think that the new terrorism threats against the US facilitate the
existing negative tilt toward the Dollar and those threats probably go a long
way toward countering the optimism that might have been generated by stronger
than expected US initial claims readings on Thursday. It is possible that the
Dollar gets some support from the favorable GE earnings this morning but that is
an indirect relationship. Those that took our suggestion to buy a September
Dollar at 87.70 should look to take a profit at 87.88 and use a break even stop,
as we don’t want to be long the Dollar in the face of the new terrorism focus.
EURO
There is nothing to suggest that the Euro uptrend is
going to come to a quick halt. The market is probably undermined slightly by an
OECD May leading indicator decline, as that hints at slower growth patterns
ahead. We continue to maintain that the Euro is about to hit a high water mark
and that once it begins to see June economic readings the softening trend should
cause the currency to slide. In the near term, we see no reason for the Euro to
fall back below 123.53.
YEN
Apparently the Japanese elections weren’t a negative
to the currency, as the market was pleasantly surprised that the ruling party
gained some Upper House ground. In other words, the pre-election fears were
unfounded and that could mean that the Yen is poised to regain some ground on
the charts. Near term resistance in the Yen comes in today at 93.10.
^next^
SWISS
We think the Swiss is overdone with the overnight
rise to 82.02 and that a correction back down to 80.87 is possible in the coming
two sessions.
BRITISH POUND
The Pound might be a little overdone technically and
might need a minor downside probe to balance its technicals. The UK Trade
Deficit was unchanged and with the recent BOE decision to leave rates steady,
the Pound might be without a fresh driving force for the bull track of the last
two weeks. Therefore, look for a minor correction to 183.50.
CANADIAN DOLLAR
The downtrend channel resistance in the Canadian now
comes in at 76.03 and with the Canadian June employment reading showed a gain of
24,700 jobs, one would expect the currency to be supported. However, the
unemployment rate increased and that payroll reading was slightly below
expectations and that could temporarily rob the Canadian of additional buying
power. In the end, the trend is still pointing up, buy a break to 75.71.
METALS
OVERNIGHT
London A.M. Gold Fix $406.60 +$4.40 LME
COPPER STOCKS 98,300 mt tons -850 tons COMEX Gold stocks 4.394 ml -4,543 Comex
Silver stocks 118.4 ml +128,005 oz.
GOLD
While gold is looking slightly weaker this morning
we have to note it was looking slightly weaker yesterday morning at this time
and then managed to shift into a strong upward gear. We are still not sure if
the threat of renewed terrorism is going to be a consistent element for the
bulls,, but it would appear that a weaker Dollar will be a reliable supporter
for gold. However, the threat of terrorism has to facilitate more weakness in
the Dollar and that in turn should drive buyers into gold.
SILVER
The is no down playing the magnitude of the upside
thrust Thursday in silver, as prices finally came out of a three month old
consolidation. Considering the size of the rally yesterday we are not willing to
say that simple technical short covering caused the rise. It is clear that
silver and gold have risen in tandem with platinum, in what appears to be a
general diversified favor for all the metals.
PLATINUM
Not to be out done by silver and gold the platinum
market has managed to forge a $43 rally off the low this week! However, the
platinum market will now encounter a down trend resistance line at $813. We
suspect that platinum will respect chart support down at $806.8. We also think
platinum prices in a $790 to $806 range have been shown to be too cheap by the
market.
COPPER
The copper has forged a pattern of lower highs over
the last two sessions but the big downside probes in each of the last two
sessions have been soundly rejected and that is a sign of buying interest on
weakness. Shanghai copper stocks fell slightly on the week, which is supportive
but the declines were not significant enough to give a clear reading on Chinese
demand. Chinese copper prices were higher overnight but were also not that
significant.
CRUDE COMPLEX
It would appear that the energy complex was
fueled higher in part yesterday by the new terrorism threats and partly because
the market is fostering a slightly better forward looking demand outlook. It is
also possible that some speculators decided to jump into the market because of
the Democrats decision to file charges against OPEC at the WTO. In other words,
it is possible that the US political structure could serve to chafe enough
members Of OPEC that the July 21st production hike might be debatable, instead
of a high probability.
NATURAL GAS
It is very surprising that natural gas failed to
rise in tandem with crude and gasoline and that shows a distinct deviation from
the last 5 months action. The weekly inventory report showed a 109 bcf build,
which is a little negative. However, with the annual surplus narrowing again the
large build should have been at least partially offset.