Stocks Point To A Flat Open
7/19/2004
INTEREST RATES
While the US Treasury market is soft this
morning, it has managed to hold most of the gains posted last week. Apparently
the Treasury market suddenly “woke-up†to the fact that the US economic numbers
are in a softening pattern. Even the campaign trail is providing support to the
Treasuries, as several studies have been released showing that the jobs being
added to the US economy are lower paying jobs.
STOCK INDICES
Information flow in the equity market continues
to present a stark contrast. While regularly scheduled US economic information
continues to be sloppy and weak, corporate earnings reports have generally been
at or above expectations. With the second quarter earnings report flow extremely
active this week, we expect more countervailing information from earnings and
that could be just enough to discourage the existing downtrend pattern in stock
prices.
DOW
The mid May consolidation in the September Dow contract comes in at 9,981 and
that could be a target for the market over the coming weeks. However, as we have
said before, the technical condition of the market might make it difficult to
trade moderately lower, as the spec and funds were already net short the market
as of July 13th. While some support might be found at 10,130, it seems likely
that the September contract will re-test 10,100.
S&P
The pattern of lower lows leaves the trend pointing down. The net spec
positioning of the S&P shows a net long of 11,000 contracts and to be
historically oversold, the spec position has to show a 19,000 to 40,000 contract
net spec short reading. The market really doesn’t seem to think that prices
deserve to drive sharply lower, but the market can’t seem to produce a
consistent interest in the long side. The trend is down but periodically
favorable earnings reports will result in gains in the coming week. We doubt
that the earnings driven gains will hold, but we still expect to see fleeting
rally attempts. A sold out price level in the S&P is seen down at 1094.90.
FOREIGN EXCHANGE
US DOLLAR
The Dollar did make a fresh low in the overnight
action and would seem to be locked in a downward motion. The fact that Euro zone
numbers have started the week out on a firm note should keep the pressure on the
US Dollar. However, there could be a slight amount of support generated for the
Dollar by US corporate earnings flow. While we don’t see the corporate earnings
reports coming in stellar, we see them providing a partial offset to the
generally slack scheduled US numbers. We also think that the Chairman of the
Federal Reserve will provide the Dollar with some support. In the end, the path
of least resistance is down in the Dollar, possibly until it slides to the
February lows of 86.00. In order to turn the trend in the Dollar around, the
market will have to see much stronger readings on the US economy! Sell rallies
of 20-30 ticks in the Dollar Index, looking for a slide below 87.00.
EURO
The Euro zone numbers this morning were quite
impressive and really didn’t need to be impressive to control the Dollar. In any
regard Euro zone Industrial production rose by +0.7% and that shows a surprising
pick up in activity. Therefore, the Euro should pick up where it left off last
week, with the top of the up trend channel seen at 124.53 today and at 124.57 on
Tuesday. Unfortunately the Euro could slide to channel support of 123.12 without
even damaging the bullish technical setup on the charts. In the past, we
discounted the bullish potential in the Euro because of slack economic readings,
but if we see continued strength in the June numbers, then we will concede that
the big picture trend in the Euro is indeed pointing upward. The first June
economic reading from the Euro zone will come on July 22nd.
YEN
The Yen seems to have shaken the negative tilt in
place for most of last week. However, with a partial holiday, the Yen might be
subjected to mostly outside influences in the action today. Critical support in
the Yen comes in at 92.00 and resistance isn’t seen until 93.10. It is possible
that favorable US corporate earnings are something that helps facilitate gains
in the Yen in the sessions ahead.
SWISS
While the Swiss appears to be a little overbought,
one has to concede that the trend is still pointing upward. It would appear as
if Euro zone economic readings will keep the Swiss and the Euro in a positive
position versus the Dollar. Near term trend line support comes in at 81.08,
while the top of the channel comes in at 82.29.
BRITISH POUND
Another new high for the move overnight leaves the
Pound as the leadership currency. Next upside targeting comes in at 187.02. The
bottom of the channel is seen at 184.32.
CANADIAN DOLLAR
While the Canadian looks to be a little overbought
and vulnerable to a setback below 76.00, the trend looks to remain up. In fact,
US economic information this week should not undermine the Canadian and that
should make a correction to 76.00 a buying opportunity.
METALS
OVERNIGHT
London Gold Fix $406.95 +$3.25 LME COPPER
STOCKS 95,150 mt tons +700 tons COMEX Gold stocks 4.438 ml -321 oz Comex Silver
stocks 115.9 ml -1,041 oz.
GOLD
While gold initially managed to take out the prior
days high in the overnight action, it remains poised $4 below the recent highs.
There would seem to be the impetus for more gains today, as the Euro zone
Industrial production and factory orders readings this morning were strong
enough to give the Euro an edge over the Dollar. The weekly COT report showed
the net spec long in gold to be 138,000 contracts, which is a dramatic increase
of over 50,000 contracts on the week.
SILVER
The silver market has stayed under the prior days
high in the early overnight action and still stands in the gap area left by the
action in Mid April. The weekly COT report showed the net spec long to be 62,000
contracts, which is a net addition of roughly 10,000 contracts. Silver stocks
continued to decline but at a minimal pace and so far the trade and the Press
are not following the stocks story closely.
PLATINUM
Despite news that the Stillwater labor issue might
have been settled, the platinum market is still on the rise. With the rise
overnight the October platinum has reached the highest level since early June
and appears to be headed to the late May and early June consolidation highs of
$840. Critical support comes in at $815.
COPPER
The upward march in copper continues despite
potentially discouraging US economic readings and talk that Chinese imports pace
might remain weak. It is surprising that the Press is reporting copper to be up
overnight because of “less intense Chinese sellingâ€. In other words, the market
generally sees anything to do with China as a positive, even if it fundamentally
appears to be negative.
CRUDE COMPLEX
With the energy complex posting several huge
daily ranges last week and holding within striking distance of contract highs,
it is clear that the market is embracing the bull case. We would have expected
supply news from last week to dampen bullish prospects, but instead extreme
violence in Iraq countervailed the potentially bearish developments. With OPEC
deciding to automatically go ahead with the second wave of production increases,
we would have expected some long profit taking but instead the market saw fresh
buying.
NATURAL GAS
While the September Natural gas market seems to have
found decent support around $5.88, we are not sure that the market has found a
solid bottom. Unfortunately for the bull camp the weather outlook only
discourages additional selling, it doesn’t appear to foster bottom picking. We
still think that the September natural gas contract can periodically decline to
$5.75 before finding solid support.