Futures Point To A Technical Bounce
INTEREST RATES
02/05 OVERNIGHT CHANGE to 04:05 AM:BONDS-4 The
violent downside probe yesterday has to be considered an anomaly, partly because
it was totally rejected and partly because the real determinant of trend is
ahead. Certainly the US numbers provided the incentive to liquidate Treasuries,
but with the market still unsure on the pace of forward progression, prices
should have returned to the range established early in the week. However, the
numbers Wednesday did provide a countervailing force to the extremely weak
Challenger layoff readings and gives the US economy a little support into the
critical monthly payroll report.
STOCK INDICES
02/05 OVRNIGHT CHG to 04:05 AM:S&P+230, DOW21,
NIKKEI +17, FTSE-11 After several weeks of impressive performance (discounting
negative developments) the stock market failed to show a positive reaction to
much better than expected US numbers. Therefore, it seems like the market is
moving to embrace the profit taking mentality and with the upcoming events, we
are not surprised at the markets response. With the upcoming US payroll report
and the G7 meeting this weekend, there is certainly an increase in anxiety and
uncertainty.
DOW
Until there is cause, only aggressive players should be looking for a point to
buy the Dow. In fact, we still think that the March Dow will test 10,406 and
that the risk of being long into the numbers Friday, isn’t acceptable without
some type of option coverage. On the other hand, a slide today to 10,406 might
make buying a March call, an attractive way to play the coming 30 hours of
trade.
S&P
We continue to emphasize that the S&P doesn’t have a history of bottoming off a
consolidation pattern. We also point out that the S&P makes the most impressive
bottoms off big spike down reversals, but because the S&P isn’t even carrying a
net spec long position, the odds of a big spike down reversal bottom are
reduced. Pushed into the market we would be long, as the market is closer to a
bottom than a top, but our analysis of sentiment suggests that buyers are not
waiting intently on the sidelines to pick up values.
FOREIGN EXCHANGE
US DOLLAR
The trend is down in the Dollar, as evidenced by the
pattern of lower highs this week. Because the Dollar hardly managed a slight up
tick off the much better than expected economic readings Wednesday, it is clear
that the trend is down. With the BOE hiking interest rates this morning, it is
clear that money will continue to be enticed away from the Dollar and toward the
Pound. On the other hand, the BOJ seems to be committed to more intervention and
that is preventing the Dollar from falling as aggressively as many would expect.
Near term targeting is 86.38. Therefore, the interest rate differential argument
fosters Dollar weakness, while the US economic tilt temporarily discourages
weakness in the Dollar. We think the coming G7 meeting will provide some lip
service to the Dollar decline, which in turn provides about 5 minutes worth of a
rally, but in the end, the market will realize that the G7 is not yet to the
“line in the sand pointâ€. In other words, the pressures on other countries
haven’t reached the breaking point. A minor downside track is ahead.
EURO
The Euro looks as if it is in fact prepared to break
out above a critical downtrend channel line and with the German jobless figures,
there would seem to be an economic argument for a higher Euro. However, the
trade does note that the old jobless calculation rose, while the new calculation
declined by 81,000 jobs! Near term resistance in the Euro comes in at 126.37.
YEN
With the rate hike in the UK, the bull interest in
the Yen might be partially deflated. However, the BOJ raised their liquidity
target by 3 trillion Yen; to new range of 30 to 35 trillion and they indicated
that further changes were possible if required. In conclusion, the BOJ’s
(loosely defined limit) on intervention would seem to allow ongoing action
against the currency. At 20 billion per intervention the cap would seem to allow
sustained intervention. Keep in mind, the BOJ doesn’t necessarily burn through
money with the intervention, as the investment in US Treasuries could reap them
a profit! For the near term, resistance holds.
SWISS
We suspect that the Swiss will follow the Euro, but
will do so at a less aggressive pace. In fact, over head resistance is quite
formidable. Therefore, we don’t like the risk and reward of being long the Swiss
from current levels.
BRITISH POUND
The BOE rate hike doesn’t seem to be having a direct
impact on the Pound but one has to stay with the uptrend. Critical resistance is
seen at 183.60. The trend is up but the risk and reward of getting long at
current levels is unattractive, wait for a correction to 182.30.
CANADIAN DOLLAR
The best the Canadian can muster, is a slowing of
the downside. However, it is clear that levels just above 74.00 are a major
decision zone. Therefore, buy June Canadian futures at the market and buy three
June Canadian 73 puts for 90 each and hold for a major decision in the coming
month. The initial position is mostly flat.
^next^
METALS
OVERNIGHT
GLD-0.90, SLV+0.70, PLAT+2.40 London A.M.
Gold Fix $399.30 -$.30 LME COPPER STOCKS 348,475 -3,400 tons COMEX Gold stocks
3.368 ml +48,714 oz Comex Silver stocks 124.2 ml +109,100 oz
GOLD
The gold market continues to be in a partially
vulnerable technical position on the charts and to a degree in an uncertain
positioning from a fundamental perspective. While we have to think that the
impetus (the existing trend) in the Dollar, is for lower pricing, the weekend
meeting could certainly offer insight on whether the Dollar will continue to
slide at an aggressive pace. The Friday morning payroll report will also be
important to gold, as a significantly weak number should foster Dollar declines
while a good number could discourage Dollar selling.
SILVER
The silver chart pattern is developing a downward
tilt, with the pattern of lower highs and the failure early this week. For some
reason the funds lost confidence in the bull trend early this week and that
undermine, seemed to come in proximity to the spread of bird flu and the Ricin
scare but with copper managing to discount the potentially damaging demand
issues, it is clear that something altogether different is pushing longs out of
the silver market. The March contract does appear to garner some support off the
$6.10 level but has also seen a massive resistance zone form above the current
market.
PLATINUM
For the bull camp in platinum the most alarming
development has to be the sharp decline in open interest and volume. While the
decline in auto sales isn’t the death knell, it certainly isn’t a major positive
for prices. The platinum chart almost looks exactly like the silver chart and
for the market to rekindle buying interest, like was seen in September through
early January period, it could take clear cut evidence of Chinese buying as the
has already fairly priced in tightness with prices at $826.
COPPER
More gains in Asia overnight as Chinese buyers were
noted players. The trade is attempting to digest a number of minor supply
issues, all of which conspire to keep copper off the market and the ongoing
deficit very much in the mind of the market. With US numbers coming out much
better than expected yesterday, part of the macro economic scare is mitigated.
CRUDE COMPLEX
The energy complex faded and appears to be on the
verge of a downside breakout on the charts. The weekly inventory reports showed
a moderate rise, while distillate stocks managed an aggressive decline and that
would seem to leave the inventory report neutral. However, some traders seem to
want to point to the distillate stocks decline, as a temporary condition
prompted exclusively off the weather.
NATURAL GAS
Considering the massive slide in US distillate
stocks yesterday, we have to think that the upcoming weekly natural gas
inventory reading will provide a minor surprise. In fact, we think that the
weekly inventory readings this week and next could be the biggest of the year.
Expectations for the weekly inventory report call for a 200 bcf to 260 bcf draw.