Futures Point To A Flat Open

8/27/2004
 

INTEREST RATES

The Treasury market is coiling on the charts as if it is prepared to rise to an even higher trading range. While it would seem like some of the numbers are holding together in the US, other numbers are softening and we are simply not comfortable discounting the potential negative impact of high energy prices. In fact, with expectations for the GDP report this morning being consistently lowered, it might be a little more difficult to thrust higher today unless the numbers are really weak.

STOCK INDICES

One has to give credit to the bull camp, as the market is weathering a significant amount of adversity from the economic and political fronts and still manages to remain positively poised on the charts. Even with energy prices showing signs of renewed strength today and the Iraqi government promising not to try to arrest the leader of insurgents, (even though he was directly responsible for numerous deaths) the stock market doesn’t seem to be adversely impacted by the turn of events. Even the macro economic condition seems to be negative enough to undermine stock prices but that also isn’t happening.

DOW
While the Dow seems to have loss some upward momentum, this market has shown the ability to forge gains even without fundamental cause. Near term upside targeting comes in at 10,218, but a big failure move could get underway with a simple slide back below 10,140. The trend is up but we want nothing to do with the current risk and reward setup of long side plays.

S&P
Critical resistance is seen today at 1106.50 and a failure takes place with a slide back below 1101.80. September options have 20 days until expiration and a just out of the money put might be an interesting play into the coming payroll report. Consider buying the September 1080 or 1085 put, as both those options could easily be in the money next week.

FOREIGN EXCHANGE

US DOLLAR
If the US stock market can rise without fundamental justification, it is probably possible that the Dollar can continue to rise in the face of slackening economic readings and soaring energy prices. From a short term perspective, the Dollar seems to be in a minor downtrend but since the August low, traders have been bidding up the Dollar in direct conflict with the scheduled report flow. We suspect that the Dollar is now primed to slide back to the mid August consolidation down below 88.00 but given the surprising themes being generated in the currency markets, we can’t rule out an attempt to rally to 90.00. Therefore, traders should consider buying the October Dollar 89 puts for 75 points and looking to hold that position for at least a couple weeks. If the US Fed Chairman were to concede an extension of the slowing, because of soaring energy prices, that could set the Dollar into a downward motion.

EURO
In the last four months Euro rallies have come from extreme negatives in other countries and that could be what we are about to experience. We think the US Fed Chairman will be forced to tell it like it is today and that means that ultra high energy prices have extended the temporary slowing pattern in the US. While the Euro zone isn’t exactly the land of plenty, the Euro is oversold technically and could be primed for a bounce. But as we suggested in the Dollar, the Euro could easily continue to slide aggressively and that is why traders should consider buying an October 122 call, which in a sense defines the risk of picking a bottom.

YEN
The Japanese stock market was higher overnight off expectations that the GOP convention in the US would whip up some optimism toward the US economy. However, Japan is seeing signs that its own recovery is faltering and that seems to have undermined the Yen overnight. In fact, seeing a trade below 91.20 today could mean a big failure is ahead in the Yen.

SWISS
The consolidation low in the Swiss seems to be capable of holding. Traders should get long at 78.45 and use an extremely tight stop of 78.20.

BRITISH POUND
With the 2nd quarter UK GDP coming in at +0.9% that certainly seems to lower the bar for the US GDP reading. While the UK GDP reading was mostly on expectations, we suspect that the Pound will be given some support on the charts as a result of the numbers. Like the Swiss, we would buy the Pound at current levels and use a tight stop just below this weeks low.

CANADIAN DOLLAR
A series of lower highs in the Canadian clearly leaves the currency in a down trend pattern. However, there is a good chance that the even number zone around 76.00 will be enough to hold prices up. On a dip to 76.30 buy an October Canadian 76.50 call for 76 and hold for a position play.

METALS

OVERNIGHT
London Gold Fix $406.85 +$.90 LME COPPER STOCKS 107,825 mt tons -700 tonnes COMEX Gold stocks 4.823 ml Unchanged COMEX Silver stocks 109.3 ml -234,259 oz

GOLD
With the market waiting on US data and US dialogue we suspect that prices will be somewhat vulnerable. According to some sources the gold market is seeing a gradual improvement in physical demand and that could be why the gold market has been generally considered to be in an uptrend since the July low. A brief strike at a Harmony mine was of no impact on prices, as the trade is really waiting on clues to the direction in the Dollar.

SILVER
The silver market continues to waffle around the moving average but has generally maintained a positive track. COMEX stocks continue to slide lower and eventually that should generate some positive headline flow for silver. Furthermore, the silver market has forged a consistent pattern of higher highs and higher lows in a channel that has been in place since mid June.

PLATINUM
The platinum market forged a huge range overnight with a positive bias. Dow Jones is reporting that the number 2 platinum producer in the world, Impala saw its net profit slide by 14% due to currency issues but despite the profit contraction production at the company rose sharply (+15%). Therefore, it is clear that some additional platinum is being found outside of Russia and that might serve to mitigate the supply squeeze.

COPPER
While the bias on the charts is negative, the copper market will be looking to the US numbers and US dialogue for leadership today. With Shanghai copper prices down overnight, US prices could have come in weak but with Shanghai copper stocks declining by 7,088 tons one could see renewed talk of strong Chinese demand for copper. However, in order for copper to shake the liquidative tilt in place since the August high, expectations for US growth must remain in place following the GDP report this morning.

CRUDE COMPLEX

While the energy complex pulsed down again Thursday morning, crude oil did manage to fight it way back to positive ground yesterday afternoon. This morning energy prices are starting out firm, possibly because of the way the most recent Peace deal was structured and partially because Al-Sadr is apparently going to live to fight another day. Even after reports from Iraq late Thursday afternoon announced the Peace Deal had been struck in Najf it did not appear as if prices came under any pressure.

NATURAL GAS
The weekly natural gas inventory report showed a slightly larger than expected injection of 84 bcf, but that didn't prevent the annual surplus figure from rising to 262 bcf. Since natural gas prices have declined sharply since the last COT report we suspect that the small spec long is quickly being washout out. However, we are still not inclined to pick a bottom in natural gas, as we doubt that the small spec and fund short is close to a record net short.