Futures Point To A Flat Open

9/23/2004
 

INTEREST RATES

The Treasury market continues to hover just below the recent highs and given the expectations for the coming two days US economic information, it would seem like the bull camp has control. In fact, about the only report that could show some positive progression in the US economy, is the Durable goods report Friday morning. While some traders might question the relative level of Treasury prices, given that the US economy is still thought to be maintaining positive growth, it isn’t a given that the growth is self sustaining.

STOCK INDICES

After a full month in which the stock market mostly ignored the deterioration in US economic numbers, stock prices finally showed concerned for near term economic prospects. We suspect that the sharp rise in energy prices (crude oil rallied $5 a barrel from $42.45 on September 16th to $47.80 on September 22nd) has really added to the economic concern being generated daily by slack US economic numbers. From our perspective, it seems that the rate hike move was simply the straw that broke the camels back, especially with the Fed fostering the idea of another hike in the November meeting.

DOW
We see 10,076 in the December Dow futures as near term support and a target in the coming session. Using retracement analysis off the August to September rally, a decline back below the 50% retracement line of 10,065, could signal a full washout back to the August low. As we feared, the large Cap stocks are being put under the dual pressure of rising interest rates and rising energy costs and with that pressure coming in the face of a slumping economy, there is certainly a continued impetus to dump holdings. In the mean time, the market will have to get a major headline development just to turn sentiment around. With a key headline change the market will have to reach a dramatic oversold technical condition. Unfortunately the market could fall significantly before it reaches a severe oversold condition.

S&P
Typically the S&P follows through on the type of range down action posted on Wednesday. In fact, we think that the market has at least another two days down before we would expect a bottoming. Unfortunately the market probably can’t expect to get any help from the fundamental reports and that could facilitate the downside tilt. Near term targeting is seen at 1109.50, but the market might fall consistently until a big range down reversal pattern is seen.

FOREIGN EXCHANGE

US DOLLAR
As we suspected, the hope for higher yields in the US was only a fleeting support to the US Dollar. Furthermore, with the US economic report slate over the coming two sessions expected to show more weakness, we have to think that the path of least resistance is pointing down in the Dollar. We think that the currency markets should punish the Dollar for the Feds actions, as the premature rate hike damaged an already vulnerable economic psychology in the US. Furthermore, with the ultra high energy prices situation in the US being exaggerated by domestic transportation and production problems, we see the US economy in a much worse condition than other countries. With the added weight of a bitter Presidential election in the US, the path of least resistance is pointing down. While we are not sure that conditions justify a slide below consolidation support of 88.02 in the December Dollar, we do think that conditions warrant a test of that level.

EURO
Despite the revelation that Greece lied to the EU about its debt levels, the Euro remains poised to return to the August highs. However, in order to keep the Euro pointing upward, US numbers will have to remain soft. Like the Dollar, we are not sure that the Euro has the numbers to breakout and run above the August highs but the short term setup certainly justifies a re-test of the 123.83 level in the December Euro.

YEN
While a Japanese holiday has taken some of the volatility out of the overnight action, the tilt in the Yen is still negative. In fact, with the probe below critical support and the expectation that US numbers will continue to be sour, we can see the December Yen sliding all the way down to the 90.00 level. Keep in mind, the Japanese economy is just as reliant on imported oil as the US and is also dependent on favorable export business to the US and that leaves the macro economic tilt in the Japanese economy pointing downward.

SWISS
So far the Swiss is poised to forge an upside breakout above the recent highs of 80.10. While we don’t see the flight to quality tilt becoming a key driving force, it would seem like the Swiss is capable of making the 80.00 level a support level instead of a resistance level.

BRITISH POUND
The Pound has forged an upside breakout in the overnight action and could well see the 179.00 level become solid support. There would not appear to be much in the way of resistance until the 180.00 level but in order to see sharp and compacted gains, the Pound will have to see much weaker than expected US numbers today.

CANADIAN DOLLAR
Top of the up trend channel in the December Canadian comes in at 78.09 today and at 78.12 on Friday. The Canadian continues to be the best bet for consistent upside gains. Traders should continue to hold the short futures, long 3-78.50 call combination, as the calls could easily be in the money early next week!

METALS

OVERNIGHT
London Gold Fix $408.50 +$1.00 LME COPPER STOCKS 98,800 mt tons –2,650 tons COMEX Gold stocks 4.951 ml Unchanged COMEX Silver stocks 109.3 ml Unchanged

GOLD
Despite a very big range yesterday and an attempt to washout, the gold market appears to have managed to claw its way back to the vicinity of the recent highs. So far only open interest has showed a slight up tick on the September rally, with volume totals actually tailing off and that doesn’t hint at a market gathering the speculative momentum to forge an upside breakout. However, with the US Dollar recently pushed down to a much lower trading range and the outlook on the US economy suspect, it is entirely possible that more declines in the Dollar provide the basis for gains in gold.

SILVER
The silver market was already showing signs of another upside breakout in the early action today and while volume and open interest readings have failed to confirm the bullish track in prices, we have to think that the market has the ability to claw its way back to the old consolidation support level of $6.50. Like gold, silver did show some correlation to the weakness in equity prices but we think that relationship is indirect at best. While the funds haven’t shown much interest in the long side of silver, we suspect that regaining a critical technical point of $6.50 could finally bring the funds back in.

PLATINUM
With the strong upward pulse in copper and active fund interest in a number of markets, we have to think that platinum will at least find solid support. In fact, in the event that both silver and gold rise, we would have to think that the impetus in platinum would also be positive. However, the platinum market is typically the metals market most impacted by action in the equity market and the equity market has certainly moved into a weakened posture.

COPPER
Not to be outdone, Chinese copper prices managed to forge another new high overnight but failed to hold up at that level. The US early action has failed to make a new high for the move and is trading moderately back off its overnight high. Certainly the gains Wednesday were massive and they probably left the market significantly overbought and a minor corrective slide today would not be surprising.

CRUDE COMPLEX

While the trade expected to see some type of draw in weekly US inventory readings, the type of declines posted Wednesday were so significant that one has to be a little concerned about further tightening in the weeks ahead. While it is a little premature, some traders are suggesting that the impact of the recent storm might actually influence US stock levels for weeks to come. While the EIA have already asserted that US distillate stocks look adequate enough to survive the winter without severe shortages, the jury might still be out on where distillates stocks will be, as we enter the coming heating season.

NATURAL GAS
Apparently the natural gas market continues to get support off the fact that Gulf supplies of natural gas aren’t coming back on line quickly and therefore we have to think that prices will favor the upside. We also wouldn't be surprised to see the weekly inventory report show a much smaller than expected injection, as the storm apparently impacted supply flow and so far that flow isn't back to normal. Expectations call for a 60 to 70 bcf injection, but a much small than expected injection is likely.