Futures Point To A Weaker Open
INTEREST RATES
The Treasury market has managed to hold a large
portion of the massive gains forged off the most recent monthly unemployment
report and that is justified when one considers the doubt that was generated by
the report. With the Treasury market holding nearly 3 points above the level
where the COT report was measured and the market seeing a net spec short of
62,000 contracts we suspect that the record short position was pared
significantly. However, we doubt that the Treasury market has completely
reversed the net spec short position and that could leave the market with
additional upside potential, as more short specs are forced from position.
STOCK INDICES
A slightly weaker bias has replaced the generally
bullish tilt seen in equities for most of May and June. The fear of rising
interest rates has been replaced by concerns that the global growth rate is
tapering off. Also applies some selling pressure to international equity prices
are concerns that energy prices are returning to extreme levels, as an Iraqi
pipeline explosion over the weekend has now cut exports by 50%.
DOW
With the September Dow falling into the early June gap area, there would seem to
be little in the way of close-in support. However, since conditions aren’t
overly anxious, we doubt that persistent and aggressive selling will be seen. In
conclusion, near term downside targeting is seen at 10,200, but a full
liquidation down to 10,150 isn’t out of the question.
S&P
Given the fundamental news and the chart pattern in the September S&P, we
suspect that prices will continue to slide. Initial support in the September S&P
comes in at 1120, but a slide to 1117.50 is likely early this week, as investors
continue to react to last week’s disappointing US payroll report. In the event
that energy prices whip up excessive concern, it might be possible for the S&P
to slide down to 1109. One should note that it is a rare occasion (at least
since early 2000) to see a net spec and fund short in the S&P. In fact, seeing
the net spec and fund short reach 20,000 contracts could be a strong technical
signal of a key low! The net spec position was only 10,000 contracts long as of
last Tuesday and since then the market has declined 14 points and that probably
puts the net spec positioning into net short territory!
FOREIGN EXCHANGE
US DOLLAR
The Dollar deserved to come under significant
pressure last Friday but has managed to reject part of that significant downward
pulse over the last 24 hours. However, we are not sure that the Dollar deserves
to recover as the threat of higher US interest rates is reduced and the respect
for US growth is also downgraded. We suspect that the Dollar will see
significant overhead resistance off the bottom of the June consolidation and
unless US numbers strengthen quickly, we suspect that the bias in the Dollar
will be to the downside. Adding to the negative tilt toward the Dollar are
concerns that soaring energy prices are returning and the market has
consistently felt that the US economy is more vulnerable to energy prices than
most other economies. Overhead resistance is seen up at 88.75 and near term
targeting is seen at 88.00 to 88.10.
EURO
While the Euro has rushed back to the top of the
June consolidation off the US payroll report, we are still not interested in
playing for a continuation of the upside in the Euro. After all, the German
jobless readings overnight showed only minimal positive growth. In fact, unless
US numbers turn off exceedingly weak, we doubt that the Euro will be able to
rise above the June high of 123.30. The trend might be shifting to the upside in
the Euro but the risk and reward of being long still seems unattractive.
YEN
We are not sure if the rise in energy prices has
undermined the Yen, or if the disappointing US economic report flow has caused
the Yen to fail. One might also be concerned about slowing Chinese activity and
its impact on the Japanese economy. In the near term, the Yen might continue to
fall but the ability to hold above 91.93 might turn the tide of early selling.
In the event that the Yen continues to slide, one might expect ultimate support
of 91.45 to provide fleeting support but a full liquidation might allow for a
slide to 91.00.
^next^
SWISS
While the Swiss has managed to rise above the last
month’s consolidation it wasn’t able to hold all of the gains. However, it
should be noted that the Swiss did manage another new high for the move in the
overnight action and that shows ongoing bullish potential. Like the Euro it
would not seem like the Swiss has the macro economic strength to launch into a
consistent upside thrust.
BRITISH POUND
The pattern of lower highs in the Pound is
restraining the upside potential in the Pound but probably isn’t going to
prevent an upside test. Reports that UK Industrial and manufacturing output rose
+0.5% gives the Pound an additional lift and might be capable of pushing the
Pound above the June highs of 183.19.
CANADIAN DOLLAR
The Canadian would seem to be headed to the April
high of 76.40. With the Dollar on its heels and little dominance being seen by
other currencies, the Canadian might be considered the strongest trending
currency!
METALS
OVERNIGHT
London A.M. Gold Fix $398.40 +$3.70 LME
COPPER STOCKS 99,625 mt tons -375 tns COMEX Gold stocks 4.399 ml -201 oz Comex
Silver stocks 118.3 ml -50,416 oz
GOLD
Despite the attempt to rally into the end of June,
the gold market continues to be vulnerable to liquidation. To a degree the bulls
have to be disheartened, especially with the Dollar falling sharply and the gold
market only managing a fleeting attempt to rally. While the bulls might not have
gotten the reaction they would have liked, we don’t see conditions shifting
against their position as the US economic information released last week should
keep the Dollar under pressure.
SILVER
Like gold, the silver market comes into the action
this morning hovering in the upper 2/3rds of the last three months trading range
and maintaining a slim upward bias. The silver market also comes into the week
with a net spec long of 53,000 contracts and with the market 17 cents above the
level where the COT report was measured, we suspect that silver comes into the
action today net spec long 58,000 contracts. Unless the September contract
manages to take out the $6.225 level, it will continue to forge a lower high
pattern, which is somewhat negative.
PLATINUM
The platinum market remains in a weak liquidative
posture but with the funds already net short and the small specs holding a
minimal long position. Therefore, with just a little selling pressure we could
see the platinum market in a significant short position. The path of least
resistance is down, but with the world remaining skeptical toward Chinese demand
and expecting only minimal US growth, there is little impetus to forge a
conclusive and quick bottom in platinum.
COPPER
A gap up move to start the week suggests that prices
are poised to climb above the critical 125 pivot point on the charts. Chinese
copper prices were higher overnight and with the LME stocks falling below
100,000 tons it is possible that the market is psychologically supported by the
tight supply theme. In addition to the labor problems in Chile and the US from
last week, the market could see some support from a Labor vote in Canada.
CRUDE COMPLEX
The energy complex certainly managed an
impressive rally off the June low and did so off a combination of renewed supply
concerns, confirmation of ongoing tightness within the US and most importantly,
the idea that OPEC might not raise production in August. The market saw an added
short covering impetus off the concern that financial problems with the largest
Russian producer might serve to crimp global supply. The problem with bidding up
oil prices off the Yuko’s situation is that creditors of the conglomerate would
probably want to see production continue without fail even if there is a change
in ownership.
NATURAL GAS
The natural gas market has hardly bounced off the
bottom, when one compares it’s action to the action in crude and unleaded. US
temperatures have just not been conducive to strong cooling use and that is a
major undermine. Even with the market seeing a narrowing the annual surplus
figure, that isn’t enough of a development to shift the market squarely back
into a bull stance.