Futures Set For A Technical Bounce

INTEREST RATES

03/12 OVERNIGHT CHANGE to 04:12 AM:BONDS+7 The
Treasury market seemed to pause around the recent highs and that pause seemed to
arise off the bombing incident. Maybe the slightly favorable slate of numbers
Thursday morning, from the US, gave the longs reason to take profits and maybe
the trade is concerned about the prospect of additional US Treasury supply in
the event that another attack is carried out in the US. However, in the end one
would think another attack would serve to pinch off the anemic economic recovery
and in turn boost Treasury prices sharply.

STOCK INDICES

03/12 OVRNIGHT CHG to 04:12 AM:S&P+340, DOW34,
NIKKEI -134, FTSE-18 There is a pretty decent chance that the stock market will
“get over” the recent bombing quickly, if the Spanish Government manages to play
up the role of domestic terrorists in the recent attack. However, if the world
suspects that Al-Qaeda still has the power to reach out and affect horrible
tragedies, then the stock market has a problem. We still don’t get the sense
that prices are set to decline in a panic style and for the most part we don’t
consider the losses yesterday to be panic losses.

DOW

In order to fill a gap in the June Dow, the market would need to slide down to
9,990. Right now, picking a bottom in the Dow seems to be like catching a
falling knife, if wrong about where the bottom is, one might suffer significant
pain. On the other hand, those getting long would only seem to have short
covering potential on their side and that is not worth the inherent risk!

S&P

Because the economic setup offers no reason to be bullish, the geopolitical
situation is concerning and the charts haven’t given us a classical bottom
signal, there is no reason to suspect a bottom. Some might think a bottom is
already in place with a slight short covering bounce this morning, but the
current setup is not a high probability long entry point. Those that got long
from 1105 on our suggestion yesterday should look to take a quick profit on the
higher opening, (at an 1110 trade this morning) or look one should look to buy a
put against the position quickly. When we decided to put out a buy at 1105, we
wanting a big disappointment/over-reaction to the current softening of the
economic condition but the bombing added an element that we think makes the risk
too high. If you are long from 1105, use a break-even stop and see if you can
bank a minor profit on the short covering opening.

FOREIGN EXCHANGE

US DOLLAR

After failing to get a flight to quality lift off
the bombings, the Dollar seems to be taking a different track. Maybe the trade
thinks that the Euro zone economy might be injured by the prospect of terrorism
in that region. However, the fact that the Press received threats of an
impending US attack, should countervail the positive spin for the Dollar. It is
also possible that statements from the US Fed Chairman Thursday, are providing
support for the Dollar. We are still not impressed with the Dollar and think
that buyers will become less interested in the Greenback once prices return to
the upside breakout point on the charts. In order for the Dollar to justify an
upside breakout point on the charts, the numbers will have to be better in the
US or the numbers will have to be worse in the Euro zone. Define the trading
range as 88.08 and 89.82 in the June Dollar. The Dollar might also be getting
some support from the fact that Canadian jobs figures were weak this morning.

EURO

The euro chart is vulnerable and the bombing
certainly throws some uncertainty into the mix. Critical failure support levels
in the Euro come in at 121.33. We just get the sense that the Euro is in the
process of falling to a new lower trading range but that the selling will begin
to dry up once prices reach the 120.20 level.

YEN

The charts look negative and the world did see a
specific terrorist threat lodged against Japan. In the past, the world basically
thought that the US and UK were the primary targets but the terrorist might also
look to those without a strong military and those not as far along with domestic
security. It also seems like the BOJ is still working to push the currency down
and that is causing some to think that the Japanese economy is more fragile than
expected. In other words, why is the BOJ acting so aggressively? Near term
targeting and support comes in at 89.85.

^next^

SWISS

The flight to quality benefit for the Swiss was very
short lived and that highlights the lack of convicted bullish sentiment. Near
term downside targeting is 77.52 and possibly 77.20.

BRITISH POUND

The charts still look negative and a trade below
177.82 begins a trek that might culminate in a 175 trade. The higher rate
structure might be in the process of being reversed and so the currency gains
made off that issue must be extracted.

CANADIAN DOLLAR

The Canadian economy lost 21,000 jobs and that comes
as no surprise to those on the North American continent. In other words, the
world is slowing and few countries are immune. Therefore, the Canadian is put
into a vulnerable position. Critical support at 74.98 might hold, but a
violation of that level could project a slide to 74.22.

METALS

OVERNIGHT

GLD+0.20, SLV+5.70, PLAT+12.20 London
A.M. Gold Fix $400.75 +$3.35 LME COPPER STOCKS 247,725 -4,200 tons COMEX Gold
stocks 3.52 ml Unchanged Comex Silver stocks 123.9 ml -65,418 oz

GOLD

The gold market hardly showed a ripple off the
bombing in Spain and with the Dollar higher in Europe this morning the gold
market would seem to be in a limited position. The most disconcerting thing for
the gold bulls is that silver and platinum seemed to be lifted by the terrorism
incident. We just don’t see a definitive driving theme in the gold market,
except for the Dollar and the Dollar looks to be caught in a back and forth
trade.

SILVER

Contrary to the sloppy action in gold, the silver
market is showing signs of breaking out to the upside. The trend is up but we
are really bothered with the fundamental and technical setup in silver. It would
seem that industrial demand is in question because of the action on the economic
front and the technicals in silver are moderately overbought.

PLATINUM

The technical pattern in the platinum market is very
impressive, with the lows of the last two months respecting a very tight up
trend channel. Considering that the platinum was lifted off the bombing
incident, it would seem that platinum is primed for even more gains. Critical
support in April platinum comes in down at $902.5.

COPPER

While Chinese copper prices opened limit up and
managed a strong close, it is clear that those prices were simply playing
catch-up to the US action Thursday. It would also seem that US copper prices
will come in weak today despite the Chinese price action. We are very surprised
that the copper managed to rise so sharply, considering the macro economic risk
generated by the bombing.

CRUDE COMPLEX

The energy complex surprised the trade with a
strong bid Thursday and didn’t even give up gains in the later afternoon
session, which is impressive given the turn of events Thursday. While the Madrid
bombing was initially thought to be a domestic terrorism attack, it now seems
that Al Qaeda is claiming responsibility. With the global recovery already on
fragile footing, we have to wonder if energy prices can completely ignore the
potential demand ramifications of even further slowing.

NATURAL GAS

The natural gas market really outperformed
expectations Thursday and with the regular energy complex leading the way
higher, we have to think that the relative BTU argument was the main force
behind the natural gas rally. We really don’t see natural gas as a vulnerable as
crude to the macro condition, but with natural gas garnering most, if not all of
its recent strength from the regular energy complex, we might see natural gas
track the stock market a little closer than normal (the stock market will
probably track geopolitical events closely). The weekly storage reading showed a
draw of 28 bcf, with an increase in the annual surplus and that is a negative
development.