Futures Point To A Weak Open
INTEREST RATES
02/04 OVERNIGHT CHANGE to 04:04 AM:BONDS+5 The
Treasury market is slightly higher this morning and with the numbers yesterday,
we would have to think that some economists are preparing to lower their
estimates for the Friday morning report. In our mind, the Treasury market
continues to hold lofty expectations for the Friday morning report and failing
to reach a 6 digit gain in payrolls, will certainly foster fresh buying in
Treasuries. In fact, we really don’t see the bear camp getting sustained selling
interest off, a number that reaches the targeting, because the two month average
of job gains will be pretty anemic.
STOCK INDICES
02/04 OVRNIGHT CHG to 04:04 AM:S&P-430, DOW-37,
NIKKEI -194, FTSE-11 While one can’t say enough about the bullish resolve of the
market in general, it is not a bullish development to see the Dow breaking out
to the downside on the charts this morning. It is also not real positive to see
continued divergence between the Dow and the S&P, as that shows a lack of
consensus. While corporate earnings reports have generally managed to keep the
market in a positive position, the regularly scheduled economic numbers are
serving to undermine investor sentiment.
DOW
The Dow continues to slide lower in the overnight action, with the early January
lows of 10,406 the first logical support zone. As mentioned before, we don’t see
the threat of a major price slide, unless the payroll number on Friday is so
soft that the market actually questions the recovery. Two straight months of
zero job growth is more than enough proof of failed recovery, especially in an
election year! In the near term, the path of least resistance is down!
S&P
In our experience the S&P doesn’t usually mount sharp upward run following a
sustained consolidation. In fact, history might suggest that a sustained
consolidation is usually a precursor to a big washout. Trend line support in the
March S&P comes in down at 1122.70. Since the technicals are so balanced, we
think that a massive break is unlikely but we also realize the importance of the
coming payroll reading Friday morning. Therefore, traders should pre-buy a
February S&P 1110 put early today for 680 and then look to buy the March S&P
futures on a correction down to 1122.70 later. In other words, leg into a long
future position slightly lower, but secure some minor put coverage first.
Therefore, longs will have some protection in place, just in case the market is
hit with a major negative Friday. If one is long and the numbers are decent
Friday, the cost of the put will be offset by a strong futures run.
FOREIGN EXCHANGE
US DOLLAR
While the trade is convinced that the G7 is moving
away from a consensus on the Dollar, the market is still pretty much up in the
air on the coming G7 meeting. Certainly the terrorism scares are serving to
undermine the Dollar and recent US economic readings are hardly the type to
encourage the Dollar to shut off the sustained downtrend seen for the last
several quarters. In fact, with the coming benchmark employment report from the
US and the negative Challenger layoff report yesterday, we have to think that
the economic differential favors the bear camp in the Dollar. However, it would
also seem like the Dollar is finding some support around the January up trend
channel. In other words, since the perceived January low in the Dollar the trade
has respected the up trend channel on many occasions. The uptrend channel line
in the March Dollar Index represents a bull/bear line on the coming G7 meeting
and that line comes in today at 86.55. The bias in the Dollar is down and to
shut off the downward tilt, the factory orders reading today, has to come in
better than expected!
EURO
With Euro zone inflation readings coming in above
expectations and above their inflation targeting that could spark talk of higher
rates in the Euro zone. While the ECB officials have recently soften their
dialogue toward the Strong Euro, seeing an economic reason to slow the Euro,
might be enough of a reason to back down from their recent company line.
Therefore, the bias in the Euro is up but the inflation numbers take away a
minor element from the bull camp. Critical resistance in the March Euro comes in
today 126.60 and that is considered a breakout zone. Critical support in the
Euro comes in at 124.72.
YEN
$20 billion here and $20 billion there and the BOJ
has managed to keep the Yen from extending the upside breakout. So far, there is
no indication that the BOJ is about to run out of bullets for their intervention
efforts and therefore the Yen looks to creep higher. With Bank and tech stocks
getting hammered in Tokyo overnight, it would seem that the BOJ will be forced
to stay the course. Another breakout takes place with a rise above 95.18 today.
SWISS
Overhead resistance is formidable in the Swiss and
therefore the Euro will have to make a breakout before the Swiss can be expected
to follow. It would almost appear as if the overhead resistance is so thick that
the Swiss will be unable to run higher. The fundamental consensus is equally
disjointed making an upside run less likely.
BRITISH POUND
Another strong rise in UK housing prices would seem
to foster rate hike talk and that in a way justifies the recent upside breakout.
Another critical pivot point in the Pound comes in at 184.05 today and if any
currency should return to the highs, it should be the Pound.
CANADIAN DOLLAR
Even in the face of a major Dollar slide, the
Canadian faltered and that clearly depicts a bear tilt. While a sharply lower US
Dollar might discourage a sharp slide in the Canadian Dollar, it would appear as
if the Canadian is headed for a test of the December low and maybe the November
low of 74.05. Maybe the falling Dollar and slow US recovery is beginning to
seriously undermine the Canadian recovery!
^next^
METALS
OVERNIGHT
GLD+0.70, SLV+0.70, PLAT-3.80 London A.M.
Gold Fix $399.60 -$2.15 LME COPPER STOCKS 351,875 -2,700 tons COMEX Gold stocks
3.319 ml -4,339 oz Comex Silver stocks 124.1 ml -5,227 oz
GOLD
While the gold market has mostly halted the downward
liquidation thrust we are under whelmed with the response to the big Dollar
slide on Tuesday. While it seems that the G7 lacks enough consensus to alter the
down trend in the Dollar, it is not yet clear that a persistent slide in the
Dollar will even rekindle the bull interest gold. Perhaps the most discouraging
development for the bull camp is that open interest continues to decline, which
suggests some specs are moving away from the market.
SILVER
While silver posted an inside day and continues to
consolidate above the big spike low, it that seems that the bulls lack
confidence. With the Ricin and bird flu situations, we have to think that silver
is negatively affected, as that hints at reduced physical and industrial demand.
Critical pivot point support in March silver comes in at $603 and in order to
turn the short term trend toward the upside, the March contract will have to
regain $6.165.
PLATINUM
The platinum market initially saw aggressive selling
in the Asian trade overnight but some buyers surfaced and pulled the market off
a moderate slide. The Asian trade reported increased physical interest by the
Chinese, which had reportedly fallen off at the end of last year. Therefore, if
the platinum market sees consistent Chinese demand ahead, that could make the
recent lows pretty solid.
COPPER
The copper market once again flares to new contract
highs in the early US trade and that follows a moderately sharp rise in Asian
copper prices. As we suggested Monday, the next upside targeting in copper might
be the 118 to 120 level on the monthly charts. The trade fed higher off another
supply disruption, as the world’s largest underground mine (in Chile) saw
production halted by a power outage.
CRUDE COMPLEX
The weather outlook looks to remain mostly cold
into early next week and considering the string of cold weather in the US, we
would have to think that the weekly inventory readings stand a chance of posting
lower than expected supply readings. In fact, if the heating oil and natural gas
stocks fail to show at least notable declines this week, the bull camp doesn’t
have the fundamental backing to take prices back to the recent highs. We
continue to think that $35 crude oil and 93 cent heating oil prices are a little
expensive, unless there is a political supply problem, or a sustain physical
supply problem.
NATURAL GAS
While natural gas prices seem to be flirting with an
upside test of chart resistance, it is has to be really disappointing to the
bull camp to see prices so weak in the face of an extended US cold front. With
cold weather expected until the early part of next week and the last two weeks
bringing in sub zero readings across a wide section of the US, we expect the
largest draw of the season. In the past, we have noted a 2 week delay in
inventory reactions and that would mean the next two reports should be the
biggest of the season.