Futures Point To A Weaker Open
INTEREST RATES
03/18 OVERNIGHT CHANGE to 04:18 AM:BONDS-5 We
think the most significant influence in the Treasury market Wednesday, was a
profit taking mentality. It is also possible that the sharp rise in the US
equity market undermined the Treasuries, but it was also clear that Greenspan
comments, regarding improving business loan demand also prompted some light
selling interest. The initial claims readings today looks to be supportive but
many traders are watching the PPI report release closely, because of the
repeated delay in that critical US inflation reading.
STOCK INDICES
03/18 OVRNIGHT CHG to 04:18 AM:S&P-280, DOW-25,
NIKKEI +42, FTSE-31 The stock market made the most out of a sloppy outlook with
the gains Wednesday. We do think that the lead up to options and futures
expirations, gave the market a lift and that the Greenspan dialogue simply added
into the mechanical buying efforts of the arbitrage trade. However, we do get
the sense that some investors remain confident enough in the recovery to move
into fresh positions.
DOW
In order to turn the market back up, the market needs a clean sweep of favorable
US numbers and at least two solid earnings reports in the early going today. In
other words, unless the headlines provide a positive kick, we expect a minor
profit taking slide in prices. However, the June Dow would seem to have solid
support close in at the 10,238 level. Once the smoke from the options and
futures expiration clears, (which is after the opening Friday morning) we would
expect the June Dow to weaken and return to the 10,095 level.
S&P
As we projected yesterday, the 1125 level was solid resistance, but with the
expiration process still in motion, we would not be surprised by an addition
probe higher today. In general we expect the June S&P to respect an 1125 to 1101
trading range with the market is looking for some leadership. Unfortunately, the
scheduled economic report slate has recently been unable post strong enough
readings to effectively turn off the negative tilt that has been in place since
the March high. We like being short the S&P or E-mini futures and in turn being
long two April 1130 calls calls against the futures play. A slide back to the
recent lows from current levels would cover nearly 2/3rds of the option premium,
allowing traders to lift the futures and hold some cheap calls into the
extremely critical April 2nd US unemployment report.
FOREIGN EXCHANGE
US DOLLAR
The technical action in the Dollar suggests that
more losses are ahead in the Dollar. In looking at the scheduled economic
reports due out from the US today, we don’t get the sense that a change is about
to take place in the US economy. However, until the June Dollar Index gets below
88.54, the trade might not become aggressive sellers of the Dollar. We actually
think that the Dollar would have come under even more aggressive liquidation
yesterday, if the US stock market weren’t showing such impressive strength and
therefore the chance for more significant weakness in the Dollar improves in the
trade today. The Greenspan comments yesterday also helped to discourage selling
in the Dollar Wednesday. All things considered we have to expect the Dollar to
continue sliding lower, unless there is some favorable headline number that
alters existing sentiment. The delayed PPI report from the US this morning could
provide support to the Dollar, but only if that number is ultra hot. Sellers
could look to implement fresh shorts on a near term bounce to 89.00.
EURO
The pattern of lower highs seems to be entrenched
but continued weakness in the Dollar could make it harder for the Euro to fall.
While the Yen is picking up some of the slack thrown off by the Dollar weakness,
we are doubtful that both the Euro and the Dollar will fall aggressively and at
the same time. Therefore, we suspect that the Euro is capable of holding above
critical support of 121.76. In fact, the 122 level would seem to be a fairly
important consolidation zone for the coming session.
YEN
The Yen is on fire, as the Dollar and Euro are both
back on their heels. It is also thought that the BOJ is standing back from
intervention efforts because of the proximity to year end and because the
current trend looks so strong that their money might be wasted. Early in the
week we expected a rise above 92.50 and now we expect a rise above 94.00. In
fact, ultimate targeting could be all the way back up to contract highs!
^next^
SWISS
The Swiss is simply mired in a consolidation pattern
and basically lacks a fundamental reason to come out of a 79.00 to 78.00 trading
range. Aggressive position traders might look to sell a rally to 79.16 using a
stop at 79.45.
BRITISH POUND
The path of least resistance is up in the Pound, as
the Yen and the Pound are the leadership markets. Even though forecasts for UK
retail sales call for a contraction, the market really isn’t focusing on the
actual pace of current growth, with most traders looking to the prospect of
higher interest rates. With the US and Euro zones seemingly mired in low rate
environments, the trade is moving money toward the Pound and the Yen where there
is at least a chance of higher rates. Near term upside targeting in the Pound is
182.67.
CANADIAN DOLLAR
The charts would seem to be pointing down in the
Canadian but we doubt that the market is prepared to push the June contract
below the 74.09 level.
METALS
OVERNIGHT
GLD+0.50, SLV+1.00, PLAT-5.30 London A.M.
Gold Fix $407.15 +$7.15 LME COPPER STOCKS 229,050 -6,000 tons COMEX Gold stocks
3.57 ml -596 OZ Comex Silver stocks 122.1 ml -294,290 oz
GOLD
With the June gold contract already bordering on an
upside breakout on the charts, the overnight gains could put the market in
position to forge even more significant gains in the US session. Reports that
Indian gold demand is set to rise by 20% in each of the next two months comes at
just the right time as the June gold contract is close to breaking above a 2 1/2
month old down trend line. Indian Wedding demand is largely anticipated by the
gold market, but the issue is nonetheless a supportive issue through the end of
April.
SILVER
The silver market managed to rise to a new contract
high in the overnight action and with the gold market providing solid
leadership, even more gains are expected in the New York session. However,
unless the funds decide to step in aggressively, the initial upside pulse might
be limited to the top of the channel at $7.36 in the May contract. One would
think that strength in gold would make it easier for the funds to bid up silver
prices! If the $7.36 level is taken out, that clears the way for a rise to
$7.50.
PLATINUM
Surprisingly the strength in gold and silver is not
being accompanied by gains in platinum. In fact, the action overnight gives
credence to the argument that some players have been using long platinum
positions against short gold positions. There would not seem to be a specific
reason for the bull market in platinum to be derailed and therefore we would
expect the April platinum to quickly find support around the $897 level.
COPPER
With the 6,000 ton overnight decline in LME copper
stocks and the rather impressive rally in the US equity market on Wednesday, it
is clear that the bull camp in copper is getting what it needs. In fact, with
the Nikkei rising another 42 points overnight it would seem like copper is
poised to make a run at the 1.40 high. Chinese copper prices were lower
overnight but Asian prices seem to be ready to follow US prices higher.
CRUDE COMPLEX
We think the energy complex took one look at the
API and DOE inventory numbers and rushed to the conclusion that very little
seasonal stock rebuilding was likely to take place. While that might eventually
prove to be an error, the market is fully entrenched in the bull case and won’t
be easily discouraged. In fact, some might suggest that the market is assuming
the perfect storm on the demand front but even that won’t matter until there is
some specific proof that the economy is injuring demand.
NATURAL GAS
It looked like natural gas prices were set to
correct Wednesday but with the crude oil market exploding, the BTU cost
comparison issue reached in and jolted natural gas prices higher. Even if the
weekly inventory readings today look negative, we doubt that natural gas prices
will slide much, as commercial users are probably going to rush forward to cover
future needs. With the crude oil market possibly headed to $40, the May natural
gas market will probably find the capacity to retest the $6.00 level.