Here’s Why Bonds Didn’t React Aggressively To The FOMC
BOND MARKET RECAP
8/10/2004
September Bonds closed down 0-10 at 110-12. This
was 0-02 up from the low and 0-20 off the high.
September 10 Yr Treasury Notes finished down
0-115 at 112-040, 0-165 off the high and 0-015 up from the low.
Treasury prices failed to respond to a
slightly better than expected productivity reading as some thought that with a
slightly better than expected productivity reading the US could have held off on
hiking interest rates. The Richmond Fed manufacturing readings were also mostly
better than expected and that should have had a negative impact on Treasury
prices. However, the market was so pre-occupied with the FOMC meeting that the
early reports had almost no impact on prices. Following the FOMC decision to
hike interest rates 25 basis points applied only slight pressure to prices as
the market largely thinks the move was a long term adjustment move and was not
an indication of the near term health of the economy. With the Fed saying that
upside and downside risks are balanced its understandable that the Treasuries
didn’t see an aggressive reaction to the FOMC decision.
Technical Outlook
#BONDS (SEP) 8/11/2004: The outside day down is
somewhat negative. The market could take on a defensive posture with the daily
closing price reversal down. The close below the 1st swing support could weigh
on the market. Near-term resistance for bonds is at 110.24 and then again at
111.13, while swing support hits at 109.25 and below there at 109.15. A positive
signal for trend short-term was given on a close over the 9-bar moving average.
Rising stochastics at overbought levels warrant some caution for bulls. The next
upside objective is 111.13.
T-NOTES(SEP) Momentum studies are trending
higher, but have entered overbought levels. The near-term upside objective is at
112.27. The market is in a bearish position with the close below the 2nd swing
support number. Near-term resistance for the T-Notes is at 112.12 and then again
at 112.27, while swing support hits at 111.22 and below there at 111.15. The
market’s short-term trend is positive on a close above the 9-day moving average.
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STOCK INDICES RECAP
8/10/2004
September S&P finished up 12.1 at 1076.4, 2.4 off
the high and 9.2 up from the low.
September S&P E-Mini closed up 11.75 at 1076.
This was 12 up from the low and 2.75 off the high.
September Dow closed up 117 at 9917. This was 97
up from the low and 13 off the high.
September Dow E-Mini finished up 119 at 9919, 13
off the high and 116 up from the low.
All things considered the stock market managed
some impressive action Tuesday as prices rallied ahead of the FOMC meeting and
then weren’t discouraged by the fact that the US actually raised interest rates.
The stock market was certainly cheered on by the fact that the Richmond Fed
readings came in much better than expected. Traders suggested that slightly
weaker energy prices and the potential for a “deal†in southern Iraq provided
the market with support. However, it would appear to us that the fighting in
Iraq was showing the opposite of a cease fire agreement. It is possible that the
market sees the intense fighting as a possible end game by the Iraqi cleric and
that coalition forces are set to get the upper hand.
Technical Outlook
#S&P500 (SEP) 8/11/2004: There could be more
upside follow through since the market closed above the 2nd swing resistance.
Underlying support comes in at 1070.20 and 1062.90, with overhead resistance at
1081.80 and 1086.10. The close below the 9-day moving average is a negative
short-term indicator for trend. Momentum studies are still bearish, but are now
at oversold levels and will tend to support reversal action if it occurs. The
next downside objective is now at 1062.90.
S&P E-Mini (SEP): Momentum studies are declining,
but have fallen to oversold levels. The next downside target is 1058.94. The
market has a bullish tilt coming into today’s trade with the close above the 2nd
swing resistance. Near-term resistance for the S&P Mini is at 1083.38 and then
again at 1088.44, while swing support hits at 1068.63 and below there at
1058.94. The market’s close below the 9-day moving average is an indication the
short-term trend remains negative.
NASDAQ (SEP) A negative signal for trend
short-term was given on a close under the 9-bar moving average. The market has a
bullish tilt coming into today’s trade with the close above the 2nd swing
resistance. The market should run into resistance at 1348.50 and above there at
1359.75 with support at 1325.50 and 1313.75. Daily stochastics declining into
oversold territory suggest the selling may be drying up soon. The next downside
objective is 1313.75.
MINI DOW (MAR) The close below the 9-day moving
average is a negative short-term indicator for trend. The market should run into
resistance at 9983 and above there at 10022 with support at 9854 and 9764.
Momentum studies are still bearish, but are now at oversold levels and will tend
to support reversal action if it occurs. The next downside target is now at
9764. There could be more upside follow through since the market closed above
the 2nd swing resistance.
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CURRENCY MARKET RECAP
8/10/2004
September US Dollar finished up 44 at 8893, 2 off
the high and 63 up from the low.
September Euro finished down 0.45 at 122.25, 0.88
off the high and 0.01 up from the low.
September Euro Dollar closed down 0.035 at 98.13.
This was 0.005 up from the low and 0.045 off the high.
September Canadian Dollar closed down 0.17 at
75.74. This was 0.02 up from the low and 0.39 off the high.
September British Pound finished down 1.11 at
182.42, 1.09 off the high and 0.02 up from the low.
September Swiss closed down 0.59 at 79.29. This
was 0.01 up from the low and 0.86 off the high.
September Japanese Yen closed down 0.73 at 89.84.
This was 0.01 up from the low and 0.66 off the high.
The Dollar showed almost no reaction to the FOMC
decision to hike US rates and that could have been the result of a general
expectation that the Fed was set to move. Early in the session the Richmond Fed
Manufacturing Index showed stronger than expected readings and many think that
countervailed the negative influence of the US rate hike. Some currency traders
think that the hike in rates is positive to the Dollar, but higher rates should
make it difficult for the US economy to gather momentum and that in turn would
drive rates high enough to begin attracting steady capital flow to the US
currency. The big losers of the session were the Pound and the Yen which might
be considered key traders partners of the US.
Technical Outlook
#CURRENCIES 8/11/2004: YEN (SEP): A negative
signal for trend short-term was given on a close under the 9-bar moving average.
There could be some early pressure today given the market’s negative setup with
the close below the 2nd swing support. Swing resistance is targeted at 90.18 and
above there at 90.67, with the yen finding support around 89.51 and below there
at 89.33. The market back below the 40-day moving average suggests the
longer-term trend could be turning down. Stochastics are at mid-range, but
trending higher which should reinforce a move higher if resistance levels are
taken out. The next upside objective is 90.67.
EURO (SEP): Momentum studies are rising from
mid-range which could accelerate a move higher if resistance levels are
penetrated. The near-term upside target is at 1.2336. The defensive setup, with
the close under the 2nd swing support, could cause some early weakness. Swing
support for the Euro comes in at 1.2158, with overhead resistance at 1.2336. The
close above the 9-day moving average is a positive short-term indicator for
trend. More selling pressure is likely given yesterday’s gap lower price action
on the day session chart.
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PRECIOUS METALS RECAP
8/10/2004
October Gold closed down 0.7 at 401. This was 1
up from the low and 1 off the high.
September Silver finished down 0.015 at 6.722,
0.103 off the high and 0.027 up from the low.
October Platinum closed up 14.6 at 850.4. This
was 15.5 up from the low and 1.1 off the high.
The gold market was lackluster for most of the
session but was mostly weak. The fact that the gold market was under the spell
of the FOMC decision explains the tight range action but at times during the
session the silver market was showing periodic signs of strength strong we have
to think that the funds were responsible for that action. The direction of the
US Dollar continues to be the main focal point of the gold market. In fact, the
direction of the Dollar in the coming 24 hour period could end up being a very
strong indicator of the trend in gold for the coming weeks! With the Dollar
seeing initial support following the FOMC decision to hike interest rates we
have to think that gold players are partially discouraged.
Technical Outlook
#P-METALS 8/11/2004: SILVER (SEP): The market has
a slightly positive tilt with the close over the swing pivot. Initial support
for silver is at 665.7 and below there at 661.1 with resistance likely at 687.1
and 678.7. A positive signal for trend short-term was given on a close over the
9-bar moving average. Rising stochastics at overbought levels warrant some
caution for bulls. The next upside objective is 687.1. The market could take on
a defensive posture with the daily closing price reversal down.
GOLD (OCT): Support for gold today comes in near
399.00, while resistance is pegged at 403.00. Momentum studies are rising from
mid-range which could accelerate a move higher if resistance levels are
penetrated. The near-term upside target is at 403.00. It is a slightly negative
indicator that the close was under the swing pivot. The close above the 9-day
moving average is a positive short-term indicator for trend. The daily closing
price reversal down is a negative indicator for prices.
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COPPER MARKET RECAP
8/10/2004
September Copper finished up 1.55 at 125.70, 0.10
off the high and 1.20 up from the low.
The copper market managed an impressive rally and
was probably seeing support from the sharp rise in stock prices and from the
better than expected, Richmond Fed manufacturing Index report. In the end,
seeing the US hike interest rates we suspect that copper sees a slight macro
economic undermine. The International Copper Study Group suggested that mining
and output capacity was set to rise consistently in the 2004 to 2008 time frame
and while that is a long term story that could be considered bearish to prices.
A Bank report might also have provided support to copper prices by suggesting
that ongoing high prices in metals was sure to keep the potential for labor
problems high.
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ENERGY MARKET RECAP
8/10/2004
September Crude Oil closed down 0.32 at 44.52.
This was 0.32 up from the low and 0.52 off the high.
September Heating Oil closed down 1.58 at 116.98.
This was 0.78 up from the low and 2.12 off the high.
September Unleaded Gas finished down 0.52 at
123.49, 1.71 off the high and 1.19 up from the low.
September Natural Gas finished up 0.10 at 5.79,
0.17 off the high and 0.04 up from the low.
September Propane closed up 0.00 at 0.86. This
was equal to the low and equal to the high.
The energy market did manage to trade into
positive ground early but gave up those gains on rumors of a cease fire deal
that might have been in motion in southern Iraq. However, it would not seem like
the fighting was abating and therefore the decline in prices was a little
surprising. In other words, if fighting were to die down that would certainly
result in full oil flow to Iraqi ports. The EIA suggested that 3rd quarter world
demand might actually contract and that 4th quarter world demand would see only
a minimal increase. In short the energy complex might be seeing an impact from
the slower than expected global recovery. The EIA also suggested that July OPEC
output increased by 500,000 barrels per day and that is another minor negative.
The natural gas market diverged from crude oil specifically because of a
hurricane threat in the Gulf of Mexico.
Technical Outlook
#ENERGIES 8/11/2004: CRUDE OIL (SEP): The market
rallied to a new contract high. The daily closing price reversal down is a
negative indicator for prices. It is a slightly negative indicator that the
close was under the swing pivot. Support for crude is keyed on 44.10 and below
there at 43.73, with resistance pegged at 44.94 and 45.41. The close above the
9-day moving average is a positive short-term indicator for trend. Daily
stochastics have risen into overbought territory which will tend to support
reversal action if it occurs. The near-term upside target is at 45.41.
UNLEADED GAS (SEP): Momentum studies trending
lower at mid-range could accelerate a price break if support levels are broken.
The next downside objective is 120.72. The market tilt is slightly negative with
the close under the pivot. Resistance today is at 126.52, while support should
be found around 120.72. A negative signal for trend short-term was given on a
close under the 9-bar moving average.
HEATING OIL (SEP): The market setup is somewhat
negative with the close under the 1st swing support. Heating oil should
encounter support around 114.42, with resistance is at 120.22. Short-term
indicators on the defensive. Consider selling an intraday bounce. The close
below the 9-day moving average is a negative short-term indicator for trend.
Momentum studies trending lower from overbought levels is a bearish indicator
and would tend to reinforce lower price action. The next downside target is now
at 114.42.
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CORN MARKET RECAP
8/10/2004
September Corn finished down 2 1/2 at 224
1/2, 2 1/2 off the high and 1 up from the low. December Corn closed down 2 1/4
at 235 3/4. This was 1 1/2 up from the low and 2 1/4 off the high.
Ideas that the market was overbought on the
upside after recent strong gains and weakness in the other grain markets due to
improving crop conditions for soybeans and wheat this week helped to trigger the
sell-off early in the session today. Crop ratings for corn were unchanged for
the week at 76% in good to excellent condition as compared with the 14-year
average for this time of the year at 64%. Exports were quiet overnight but basis
levels were firm. The much below normal temperatures in the northern mid-west
may be providing underlying support as the impact on the crop is uncertain.
Weather uncertainty has helped to trigger some short-covering from speculators
and may be limiting the downside selling. Support points for December corn come
in at 233 1/2 and 232 with resistance at 237 3/4 and 239.
Technical Outlook
#CORN (DEC) 8/11/2004: Momentum studies are
rising from mid-range which could accelerate a move higher if resistance levels
are penetrated. The near-term upside target is at 239 2/4. The market setup is
somewhat negative with the close under the 1st swing support. Market resistance
comes in at 239 2/4 today, with support at 232. The upside crossover of the 9 &
18 bar moving average is a positive signal.
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SOY COMPLEX RECAP
8/10/2004
September Soybeans finished down 6 3/4 at 571
1/2, 3 off the high and 4 up from the low. November Soybeans closed down 8 3/4
at 562. This was 1 1/2 up from the low and 4 1/2 off the high.
August Soymeal closed down 2.2 at 197.3. This was
1.1 up from the low and 2.0 off the high.
August Soybean Oil finished down 0.25 at 22.75,
0.23 off the high and 0.5 up from the low.
Commercial buying supported the late surge in
August soybeans. Cash basis levels jumped 20 cents in Ohio, and 5 to 15 cents
higher in Indiana as producer selling remains light and processor demand is
picking up. The industry continues to walk a tight wire with expectations of a
bumper crop clashing with a lack of near-term supply. The emergence of two
tropical storms in the Caribbean with one moving into the Gulf of Mexico may
increase the uncertainty of an early harvest for Louisiana and Mississippi. News
of improving crop conditions helped to pressure the new crop futures. The crop
in good to excellent condition increased to 73% as compared with 70% last week
and 58% as the 14-year average for this time of the year. Cold weather in the
Midwest may have helped to limit the losses as there is some uncertainty on the
overall impact on the crop. While avoiding excessive heat in August has
historically been associated with higher yield (1994 at record yield) the market
is showing some concern for the 15-20 below normal temperatures this week and
certainly the potential threat to the crop if this trend continues into early
September. Fund traders were noted sellers, however, of near 1600 contracts by
mid-session. There were no deliveries for soybeans or meal and 1 for oil this
morning. South Korea is tendering for 55,000 tonnes of optional origin meal.
November soybean support comes in at 556 and 548 1/2 with resistance at 565 1/2
and 567 1/2.
Technical Outlook
#SOYBEANS (NOV) 08/11/04 The gap lower on the day
session chart is bearish and puts the market on the defensive. There could be
some early pressure today given the market’s negative setup with the close below
the 2nd swing support. The next area of resistance is around 565 and 568 3/4,
while 1st support hits today at 559 and below there at 556 3/4. A negative
signal for trend short-term was given on a close under the 9-bar moving average.
Rising from over sold levels, daily momentum studies would support higher prices
especially on a close above resistance. The next upside objective is 568 3/4.
MEAL (DEC): Stochastics are rising from over sold
levels which is bullish and should support higher prices. The near-term upside
target is at 177.8. First resistance comes in at 175.6, with support at 172.3.
The close below the 9-day moving average is a negative short-term indicator for
trend. The market setup is somewhat negative with the close under the 1st swing
support.
BEAN OIL (DEC): A negative signal for trend
short-term was given on a close under the 9-bar moving average. Rising from over
sold levels, daily momentum studies would support higher prices especially on a
close above resistance. The next upside objective is 21.18. It is a slightly
negative indicator that the close was lower than the pivot swing number. Daily
swing resistance is found at 21.05 and above there at 21.18. Support should be
encountered at 20.75 and 20.58.
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WHEAT MARKET RECAP
8/10/2004
September Wheat finished down 4 at 312, 3 off the high and 1/2
up from the low. December Wheat closed down 5 1/4 at 326 1/4. This was 1/4 up
from the low and 3 1/4 off the high.
Improving crop conditions for the spring wheat
belt and fears of a jump in world production for Thursday mornings USDA world
supply/demand report helped to trigger the early selling pressure. Weakness in
the other grains and production concerns helped to pressure the market into the
close. Strong export news in the past week and news that Egypt is tendering for
50,000-60,000 tons of optional origin wheat overnight failed to provide much
support. For the spring wheat crop, the weekly crop progress report showed that
the crop rated in good to excellent condition was now 67% from 65% last week and
the 14-year average for this time of the year at 56%. The crop is now 10%
harvested. Traders look for only a minor adjustment higher for wheat production
for the report with the average trade guess at 2.072 billion bushels, up 13
million from last months USDA estimate. World production, however, could be
adjusted higher by 4-8 million tons with good weather noted for most of the
worlds key producers. While the market is still operating under the positive
influence of the August 2nd reversal, failure to hold support at 328 for
December wheat and the structure of the market basis the Commitment-of-Traders
report would suggest the possibility of a resumption of the downtrend. December
wheat resistance comes in at 329 1/2 and 331 3/4 with next support points at 322
1/4 and 316 1/4.
Technical Outlook
#WHEAT (DEC) 8/11/2004: The close below the 1st
swing support could weigh on the market. Expect near-term support around 324 2/4
and below there at 323 2/4, with resistance levels at 328 and 330 2/4. A
negative signal for trend short-term was given on a close under the 9-bar moving
average. Stochastics are at mid-range, but trending higher which should
reinforce a move higher if resistance levels are taken out. The next upside
objective is 330 2/4.
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LIVE CATTLE RECAP
8/10/2004
October Live Cattle closed down 0.10 at 88.77.
This was 0.67 up from the low and 0.37 off the high.
October Feeder Cattle finished down 0.50 at
113.22, 0.97 off the high and 0.37 up from the low.
Cattle fell sharply early in the session with
commercial traders active selling but when the selling slowed, the early losses
were erased and the market closed 1 tick lower on the session for October cattle
which was 75 off of the lows. News of 14 deliveries against the August contract
helped to pressure. Boxed beef cutout values were down $0.18 to $137.30 at
mid-session as compared with $141.46 last week at this time. Today’s estimated
cattle slaughter came in at 125,000 head as compared with trade expectations at
123,000 to 129,000 head.
Technical Outlook
#CATTLE (OCT) 8/11/2004: Momentum studies
trending lower at mid-range could accelerate a price break if support levels are
broken. The next downside objective is 87.65. The market has a slightly positive
tilt with the close over the swing pivot. Support should be encountered at 88.25
and below there at 87.65. Market resistance is at 89.30 and then again at 89.75.
The market could take on a defensive posture with the daily closing price
reversal down. A negative indicator was given with the downside crossover of the
9 & 18 bar moving average.
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LEAN HOGS RECAP
8/10/2004
October Lean Hogs closed down 1.07 at 68.85. This
was 0.05 up from the low and 1.15 off the high.
February Pork Bellies finished down 0.80 at
97.35, 1.20 off the high and 0.65 up from the low.
October hogs opened unchanged on the session and
fell sharply on follow-through technical selling from the key reversal on
Monday. Cash hogs were mostly steady with some locations .50 lower. The market
found no support from the bounce in pork values on Monday afternoon with some
focus on the outlook for a seasonal rise in production into the fall. The 2-Day
lean index for the period ending August 6th was up 14 cents to 79.63 from 79.34
a week before. For the weekly cold storage report, released this afternoon,
traders are looking for a net decline of 1.4 to 2.0 million tons in pork belly
stocks. Today’s estimated slaughter came in at 388,000 head versus expectations
ranging from 380,000 to 388,000.
Technical Outlook
#HOGS (OCT) 8/11/2004: The market setup is
somewhat negative with the close under the 1st swing support. Resistance levels
comes in at 69.45 and 70.32 today, while support is around 68.25 and then 67.92.
Short-term indicators on the defensive. Consider selling an intraday bounce. The
close below the 9-day moving average is a negative short-term indicator for
trend. A crossover down in the daily stochastics is a bearish signal. Momentum
studies trending lower from overbought levels is a bearish indicator and would
tend to reinforce lower price action. The next downside target is now at 67.92.
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COCOA MARKET RECAP
8/10/2004
September Cocoa finished up 38 at 1653, 7 off the
high and 35 up from the low.
The cocoa market sprang back to life again
despite seeing some recent fundamental setbacks (weather wise and from the
political front) against the bull case. The funds were buying in London and that
apparently sparked US fund buying action. Threats that the EU might freeze some
aid to the Ivory Coast because of Human rights violations and the delay in
elections could alter pattern of improvement in the political realm. The Press
continues to suggest that the cocoa market lacks significant short interest and
that minimal buying results in a stronger than usual rise in prices.
Technical Outlook
COCOA (SEP) 08/11/04 The market has a bullish
tilt coming into today’s trade with the close above the 2nd swing resistance.
Cocoa should run into resistance at 1674 and above there at 1688 with support at
1632 and 1604. Negative momentum studies in the neutral zone will tend to
reinforce lower price action. The next downside target is 1604.00.
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COFFEE MARKET RECAP
8/10/2004
September Coffee closed down 0.30 at 67.05. This
was 0.65 up from the low and 0.20 off the high.
The market inched lower in quiet trade with light
speculative selling and a lack of new buyers contributing to the lower close.
News flow was slow and weather looks non-threatening for Brazil coffee growing
areas. Dry weather in the forecast for the next week should promote active
harvest activity. New news was lacking to sway opinion much as the market seems
to be consolidating recent gains but funds seem to be short, and selling more
and small specs are trying to hold on to a hefty net long position. The set-up
looks bearish.
Technical Outlook
COFFEE (SEP) 8/11/04 The market tilt is slightly
negative with the close under the pivot. Daily stochastics are showing positive
momentum from oversold levels which should reinforce a move higher if near-term
resistance is taken out. The near-term upside objective is at 67.80. The Coffee
contract should run into resistance at 67.50 and above there at 67.80 with
support at 66.65 and 66.10. The market’s short-term trend is positive on a close
above the 9-day moving average.
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SUGAR MARKET RECAP
8/10/2004
October Sugar closed down 0.15 at 7.93. This was
0.07 up from the low and 0.13 off the high.
Sugar opened lower from weakness in London and
gapped below the steep uptrend channel off of the June and last weeks lows.
Aggressive fund selling helped to pressure the market and trade houses were also
selling. The open interest is concentrated in the October contract (recently
near 213,000 of the 327,000 contracts open) but the bullish fundamentals come
into play late this year and early next year. With a weekly reversal from a
contract high last week and speculators holding a record net long position, the
market looks vulnerable to a significant long liquidation break. Cash markets
are sluggish with Brazil differentials weakening in the past few weeks. In
addition, the European and Russia beet harvest will be starting next month and
Russian buying could slow. Italian crops look favorable with the sugar content
of beets posted at 16.56% as of August 5th from 15.58% last year at this time.
Technical Outlook
#SUGAR (OCT) 8/11/2004: The defensive setup, with
the close under the 2nd swing support, could cause some early weakness. Swing
resistance comes in at 8.15, with support found at 7.75. The close below the
9-day moving average is a negative short-term indicator for trend. The close
below the 40-day moving average is an indication the longer-term trend is down.
Stochastics trending lower at midrange will tend to reinforce a move lower
especially if support levels are taken out. The next downside target is now at
7.75.
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COTTON MARKET RECAP
8/10/2004
October Cotton finished up 0.15 at 45.05, 0.15
off the high and 0.35 up from the low.
The cotton market inched lower in quiet trade as
cheap prices into the USDA Crop Production and Supply/demand report has kept
sellers from getting too aggressive and the outlook for increasing world and US
production numbers along with improving crop conditions and a weakening economic
outlook is keeping the buyers on the sidelines. The emergence of two tropical
storms in the Caribbean with one moving into the Gulf of Mexico may increase the
uncertainty of crop conditions in the Deep South or the southeast so traders
will be monitoring these storms closely over the near-term. Traders are fearful
that world production could move over 105 million bales (104.73 last months
forecast) which might dent the export outlook for the US and pressure prices.
The average trade estimate for cotton production came in at 18.878 million bales
(range 18.5-19.4) as compared with 18 million last month and 18.22 million bales
last year. Ending stocks for the 2004/2005 season are expected to jump to near
5.44 million bales (range 4.9-6.0) as compared with last months estimate at 4.5
million bales. Ending stocks hit a 9 year low last season at 3.6 million bales.
Ending stocks have been over 5.44 million bales (average estimate) in just 5 of
the past 20 years.
Technical Outlook
#COTTON (OCT) 8/11/2004: A positive signal for
trend short-term was given on a close over the 9-bar moving average. The market
has a slightly positive tilt with the close over the swing pivot. Next
resistance area comes in at 45.30 and then again at 45.50, while support is
targeted at 44.80 and 44.50. Rising from over sold levels, daily momentum
studies would support higher prices especially on a close above resistance. The
next upside objective is 45.50.