Futures Point To A Stronger Open

INTEREST RATES

02/11 OVERNIGHT CHANGE to 04:11 AM:BONDS-2 The bond market lost its resolve late Tuesday, probably because of the anticipated Greenspan testimony today. The Press was touting a generally upbeat dialogue from the Fed Chairman today, with the consensus centering on continued economic growth but not enough growth to specifically point to higher near term interest rates. Down around the lows last week, seeing the Fed remain on hold, would have been supportive to Treasury prices but with prices recently tracking closer to 113-00, the market shows a much different response.

STOCK INDICES

02/11 OVRNIGHT CHG to 04:11 AM:S&P-20, DOW-2, NIKKEI clsd, FTSE-14 The stock market continues to maintain a bull posture even in the face of non-descript trade action this week. The regularly scheduled numbers from the US Tuesday were indicative of the conflict in the economy, as the Richmond Fed manufacturing survey showed an impressive expansion, but the employment measure within the report showed a contraction. In other words, most economic measures are improving, but the drag of job loss is a constant countervailing force.

DOW
While some might suggest that the Dow has almost completely lost upward momentum this week, we prefer to look forward not backward. In other words, if the market can come away from the testimony today, with the idea that status quo will continue, that should be considered bullish to stock prices. Critical support in the Dow comes in at 10,572 and then again down at 10,534. In short, the technicals are in a favorable position and Greenspan would seem to be in a position to facilitate positive sentiment.

S&P
Because of the more volatile and choppy nature of the S&P trade (compared to Dow action) we might suggest that longs be a little more defensive around the Greenspan dialogue. Traders might consider buying a February S&P 1145 call for 850 points today, rather than holding a long futures position. The 1145 call option could be in the money by the close, with a favorable spin from the news today, but the call will also limit exposure in the event that Greenspan inspires a washout. Furthermore, those long the March S&P will probably have to risk the position to at least to 1137.00.

FOREIGN EXCHANGE

US DOLLAR
The trade was convinced that the Dollar was headed directly to the January lows following the G7 meeting last weekend, but now that the market is faced with US Federal Reserve testimony, there is less confidence in the bear case. We do think that the Chairman will be worth a couple hours of optimism toward the Dollar, but that sentiment will fade quickly, perhaps into the opening Thursday. Recent US numbers also supported the Dollar, but the market really isn’t primed to drive out of the last months range, off second tier US numbers. In other words, the Dollar’s best chance of a big move comes off major speeches or testimony from Central Bank officials. Therefore, one can’t totally discount the influence of the statements to be made today. However, unless Greenspan is more upbeat on US prospects, than anyone expected him to be, the Dollar should get a fleeting bounce and become a sell! Minor Fed optimism prompts a rally to 86.42; significant optimism prompts a rally to 87.14.

EURO
We see the potential for a correction to 126.12, or an even larger correction to 125.85 but more than likely the Euro will become a buy today, after some additional weakness. However, we base our opinion on the idea that Greenspan isn’t going to go out of his way to put forth glowing remarks on the US economy.

YEN
A holiday period might make it seem like the BOJ is away from the intervention controls, but that would probably be an erroneous statement. In any regard, the Yen seems to be content to hover just under the upside breakout point on the charts. The Yen is certainly waiting to see which way the Dollar spins out of the testimony today and we would have to expect initial Dollar strength and a slightly lower Yen. However, the Yen should have solid support at 94.72 and might be considered a buy on a slide to 94.54. In buying the Yen today, make sure Greenspan doesn’t surprise the trade, or change existing economic parameters with an overly upbeat outlook for the US economy.

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SWISS
The rally yesterday was not a fluke, but we also doubt that the Swiss is ready to break out of a range bound by 81.63 and 79.77. In the near term, the Swiss could slide to support of 80.20.

BRITISH POUND
With the presence of a double top, it would seem like the Pound is full up on positive news. However, overnight the UK payroll situation partially justified the recent sharp gains in the UK currency, as the unemployment rate declined and jobless roles declined by 13,400. The numbers were much better than expected, which means that the Pound could really pulse up once the Dollar strength abates.

CANADIAN DOLLAR
The day to day correlation between the US Dollar and the Canadian continues to depict a weak Canadian. Certainly the Canadian was able to mount a decent bounce off the recent lows but the slightest recovery tilt in the Dollar, really undermines the Canadian. We see the Canadian sliding down to 74.70 where it should find a decent bottoming formation.

METALS

OVERNIGHT
GLD+0.50, SLV-4.30, PLAT+1.40 London A.M. Gold Fix $406.40 -$1.95 LME COPPER STOCKS 332,175 -4,150 tons COMEX Gold stocks 3.366 ml -595 oz Comex Silver stocks 123.5 ml -715,170 oz

GOLD
While the gold market faded yesterday ahead of the Greenspan testimony, the potential impact on gold prices from the testimony today is far from complete. The gold market will be watching the impact on the Dollar closely today, as the Dollar seemed to reject the lows Tuesday and recover into the close. Traders should use a breakout range in the Dollar to signal moves in the gold and that range should be defined as 85.76 on the downside and 86.30 on the upside.

SILVER
The silver market has already corrected back off the recent highs, as the funds have once again backed away from the market. One can’t deny the impressive technical action this week, which would seem to leave the path of least resistance pointing up. However, because the silver has risen so far above the early February trading range, it lacks close-in support.

PLATINUM
While the platinum market appears to have managed an upside breakout on the charts, the follow through hasn’t been that impressive. Like silver, we are not exactly sure what the most critical driving force is in platinum, as the market has chopped around for almost 2 1/2 months inside a range bound by $810 and $864. One has to assume that the trend is still up, but one should also realize that the action of the last two months, is the most sustained period of indecision of the entire bull market.

COPPER
Reports overnight of weaker Chinese and Korean copper prices highlight a pause in the consistent uptrend pattern. Chinese copper futures actually ended lower on profit taking and that could promote some additional liquidation in the US market today. Perhaps the most import thing to notice about recent Asian trading patterns is that some buyers are beginning to back away from the wild action and that is the first sign of doubt in the bull camp.

CRUDE COMPLEX

OPEC surprised the market with a specific date on the upcoming production cut (April 1st) and they seemed to add to the bullishness by calling for additional promises to reign in overproduction. In other words, the market saw a two part strategy to support prices, the promise of a production cut and the threat of improved compliance. Apparently OPEC is concerned that the second quarter will indeed see demand decline sharply enough, to result in supply rebuilding.

NATURAL GAS
Despite the strength in the regular energy complex, the natural gas market seems to be in a weakened posture. While temps haven't exactly zoomed to above average levels, they are rising enough to lower consumption and remove the risk of a sharp inventory slide in the remaining weeks of the North American winter. As long as the regular energy complex is on the rise, the natural gas trade will find it difficult to flush out the remaining small spec longs.