By: Moderatore on Mercoledì 07 Maggio 2003 17:50
mercoledì 07 maggio 2003 -- THE HIGHTOWER REPORT ENERGY MARKET COMMENT & STATS
The energy complex saw a fresh wrinkle in the action Tuesday, as Russia indicated that they would be set to increase oil production in May by 10%. With a production of 8.23 million barrels per day, Russia continues to see their production total climb back toward the late 80's when they almost produced 12 million barrels per day. With the energy complex recently seeing evidence that Venezuelan production was rising to 3.2 million barrels per day, we are seeing plenty of signs of rising supply. However, until that supply begins to show up
in the US, prices stand a chance of avoiding significant liquidation. There is the expectation that crude stocks will rise by 2.5 million barrels in the weekly inventory reading this morning. Given the persistent return to weak price patterns, we would not underestimate the impact of a bigger than expected crude stock build. In other words, traders still have to be fearful of a supply bulge. In the end, an overly short spec & fund position will not prevent a sharp slide in prices if there is evidence of "aggressive" supply rebuilding.
We stand by our $26 fair value pricing projection, but periodic spikes down to $25 should not be ruled out. In conclusion, this market will not weather "overtly" negative API/DOE readings (a crude stock build in excess of 3 million barrels) without some weakness. It should also be noted in the last 24 hours the world has seen a downgrading of economic prospects and that could serve to accentuate price weakness if the inventory numbers feed the bear case today.
NATURAL GAS: Part of the unjustified natural gas rally was extracted Tuesday. The anticipation of a big injection Thursday combines with the weaker regular energy complex price action to favor the bear camp in the coming sessions. However, the price spike early in the week sends a message that natural gas has better fundamentals than the crude oil market and still has some potential. However, we do not see the weather influencing prices significantly from a temperature basis, but traders need to watch for any developing Atlantic storm
patterns. The weekly injection is expected to be 80 to 95 bcf, which is slightly bearish. Therefore, given the potential weakness in the regular energy complex, we see June natural gas falling toward chart support of $5.25 but with resistance seen up at $5.75 price volatility is certainly a possibility.
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mercoledì 07 maggio 2003 -- THE HIGHTOWER REPORT MORNING STOCK COMMENT
CHANGE to 4:15 AM:S&P-330 DOW -26 NIKKEI +26 FTSE -3.0
Considering the recent action in the Bond market and the slide in the US Dollar, one has to be very impressed with the action in the stock market yesterday. Some might suggest that either bonds or stocks are in error, in their outlook on the economy, but one making that statement might be discounting the fact that stock prices might have been relatively undervalued coming into the month of April. In other words, stock prices prior to April were not factoring a recovery, they were factoring some pretty ugly future conditions. As an example of how things are better than what the market is giving credit for, we cite the CISCO earnings report reaction overnight. A year
ago the trade was seeing all kinds of experts predict a multi year slump in the high tech sector. In some cases predictions were made that the backlog of chips might not be cleaned up until well into 2004 and that business spending would remain "bad" for several quarters. From our view, the CISCO earnings report suggests "tech" is recovering but the market was hoping for a big improvement.
In other words, in less than a year, we have come from a view that the industry wasn't going to recover, to a condition in which the market is interjecting lofty expectations! Considering that Treasury market dialogue is extremely negative toward the economy and there is concern over the falling Dollar, it would seem like stock market is simply in a "better place".
In other words, stock price gains look to continue but the bulls will have to fight a tide of cynicism. The war is over, energy prices are falling, a stimulus package might be coming and US exporters are benefiting from a lower Dollar. In conclusion, the stock market maintained gains in the face of a pretty negative FOMC result
and that shows this market is in a bull market posture. We do concede that current price levels are technically overextended and therefore vulnerable.
DOW: We see the biggest risk to the market today being a desire to bank profits. However, the sellers might not be able to gain control without some headline help, as long-term investors are slowly returning to the market. Critical support is seen today at 8,515, while another up side breakout takes place with a rise above 8,600. If the market were to climb today, without any "new news", that would go a long way toward convincing the doubters that we are in fact in a mini bull market. S&P 500: Until the June contract rises above the
December high, we doubt that the general upward bias will be knocked out of position. In other words, unless some surprise negative surfaces, traders might not decide to bank profits, even if the market is technically over extended. Critical support comes in today at 928.10 but another breakout is seen with a any trade action above the 940 level.
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mercoledì 07 maggio 2003 -- THE HIGHTOWER REPORT MORNING METALS COMMENT
OVERNIGHT: Minor setback as Asian buyers show slightly less long interest.
GOLD: Despite a lack of clear-cut direction from the Dollar and the Asian gold market, the overnight gold futures appear to be prepared to rally. We have to think that the steep Dollar slide Tuesday is the type of action that solidifies long-term investment interest in gold, especially if the Euro manages to rally another 200 points before the issue of intervention surfaces. With the shares of a major gold producer possibly coming under pressure due to legal wrangling,
(labor issues) it is possible that gold futures continue to be seen as an interesting investment alternative for those that think gold prices are headed higher. Since the April low, the gold market has seen a series of 3-5 day consolidations but has usually managed to forge an upside breakout following those formations. Again we don't expect the gold rally to be violent and there is certainly the potential to see $4-$5 corrections on any given day. With
weaker economic stats coming from the Euro zone today it is possible that the pressure on the US Dollar temporarily abates and that could in turn mitigate the long interest in gold. Critical pivot point in the June gold today comes in at $342.4 but real solid support doesn't come in until $338.5.
SILVER: Like gold, the silver bull trend will not be without some corrective action and therefore current support in silver doesn't come in until $4.74 and that would seem to allow for a moderate dip without injuring the up trend. While silver hasn't shown much correlation to physical demand issues, we have to think that
recent macro economic revelations and the threat against the Asian economy is holding back silver. The US Fed reading on the US economy was bad, the EU numbers today are soft and we already know that Asian activity is being pinched by the SARS virus and that means that silver is maintaining its stellar April gains in the face of bearish fundamentals. Fresh longs have to wait for a correction to $4.72 in the July before entering long-term silver plays.
PLATINUM: While the macro economic case hasn't been that favorable over the last 24 hours, the platinum market is apparently getting itself in a much better technical posture. While some might suggest that platinum is forging a rally in a bear market, a trade above $624.5 would see the market climbing above a critical down trend channel resistance line. The platinum would be back
above a critical moving average line on a rally to $626 today.
COPPER: The copper market is peaking out above recent chart resistance and that could be because the WHO (World Health Organization) is praising Hong Kong and Chinese efforts to control SARS. While the outbreak continues, there is the feeling that it is about to peak. In other words, there is hope but the numbers
don't show an arrest of the disease. Apparently, less than stellar economic statements from the US Federal Reserve did not undermine Asian copper prices. Supposedly, the falling Dollar is making the US copper market more attractive on an arbitrage basis and that is certainly something that could carry prices in the near term. We still think that a containment of the SARS issue will result in a quick appreciation in July copper, to the top of the last month's
consolidation up around 74.55. A major copper producer is apparently going to re-evaluate production cuts next month and that could become a major issue for copper prices.
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mercoledì 07 maggio 2003 -- THE HIGHTOWER REPORT MORNING FOREIGN EXCHANGE COMMENT
DOLLAR: The fact that the Dollar can't rally on days in which the trade thinks the ECB is going to cut rates, while the US is apparently on hold WITH RATES, suggests that the interest rate differential isn't behind the slide in the Dollar. Furthermore, seeing the Dollar fail to rally on news this morning that German job losses continue to mount is a sign that the Dollar isn't capable of
getting a lift off the economic differential. In short the Dollar wants to go down and the market is not looking for reasons to alter that trend. Even with some sources suggesting that some intervention might be ahead, to support the Dollar, it hangs near new contract lows. We are not sure what changes conditions and good traders will simply suggest that one should follow the trend. Next downside targeting in the June Dollar would seem to come off the monthly charts and the December 1998 consolidation low, which is another 240
points below the current market. EURO: The German labor office suggested that they have structural problems with the 44,000 loss in jobs in April. Furthermore, the market is now expecting the ECB to cut interest rates and that might be the reason why the Euro isn't taking profits off the recent rise.
We are equally surprised that the Euro is showing only minor weakness today, with the German labor office suggesting that they don't see an improvement in the labor condition until 2004! In the end, the market really doesn't care about short-term economic developments, as it is sticking with the trend.
YEN: Reports that Japanese auto imports fell for the first time in 5 months suggests that the Japanese economy remains soft and that a bigger rise in the Yen might be needed before any change in import patterns is documented. In fact, we would not be surprised to see the Yen rise all the way to the March highs, especially since the World Health Organization is hinting at a possible control of the
SARS virus.
SWISS: We see the slight weakness in the Euro zone economy as being
a benefit to the Swiss, as some traders might want a play against the Dollar, but don't want to bet on the Euro zone economy. However, the Swiss is overbought and vulnerable to a correction. Near term support is seen down at 74.84.
POUND: Traders are suggesting that a MPC rate cut Thursday, might be
possible and that is supposedly sparking some buying of UK stocks. However, the Pound is overbought and slightly vulnerable in the near term. Correction support is seen down at 159.80. The trend is still up but it might see a pause today and Thursday.
CANADIAN: The Canadian gapped higher overnight and soared aggressively but then fell sharply off the highs and that might mean that the market is indeed overextended and in need of a correction. Recent economic readings have been soft causing some longs to consider taking profits. We still see 75.00 as a target but given the blistering pace of the gains since mid April, traders should expect wild volatility ahead.
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mercoledì 07 maggio 2003 -- THE HIGHTOWER REPORT MORNING FINANCIAL COMMENT
FINANCIALS:5/7 OVERNIGHT CHANGE to 4:15 AM :BONDS +12 One has to give credit to the bond bulls, as they have held onto their view that the world economy is still weak and they are getting confirmation from the headlines that is indeed the case. However, it would appear that the divergence between the stock market action and bond market action will continue and that bonds will even be able to rise in the face of significant declines in the US Dollar. In the end, the Fed message is that the economy remains weak and that there is
still a greater risk of deflation than inflation.
The idea that the Fed wants to flatten the yield curve isn't surprising, as that would certainly fit the need to give the economy all the help it can muster. The fact that Treasuries managed to remain strong despite a lackluster Treasury auction, highlights the ongoing view that the economy remains in the doghouse. In the mean time, it would seem like the bonds and notes will be capable of mounting a rise to the March highs, as the recovery in the economy following the end of the war simply hasn't showing itself yet. Traders that got long futures against multiple long put positions will weather this rally by financing their put positions with the
current rally, while those short futures will probably be forced from position.
The US political machine is apparently going to extend the debate over stimulus action so far into the future, that any stimulus will come well after the economy has managed to recover on its own. About the only thing the bear camp has in its favor today, is that the economic report slate contains unimportant reports and that the second wave of the auction today, might go as poorly as the first offering. However, all the bears can hope for, is mitigated gains on
the upside, as the market would seem to lack the potential for an aggressive downward thrust. In the end, the Fed couldn't say anything positive toward the economy so they said very little. The inventories report early probably helps the bulls while the consumer credit report into the close might favor the bear camp.
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