2010 December | The Hightower Report

Archive | December, 2010

Copper Market Commentary – 2010.12.31

by Dave Hightower on December 31, 2010

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The copper market has managed another new all time high thrust up on the charts overnight and the market managed that action in the face of a patently bearish set of gains in both LME and Shanghai copper stocks. In fact, LME Copper Stocks were pegged at 377,550 tons for a rise of 1,550 tons, while Shanghai Deliverable Stocks were pegged at 131,891 tons for a really significant rise of 11,465 tons. Shanghai Deliverable Stocks are at the highest levels since 06/18/2010. Therefore it is clear that the trade remains focused on the prospect of demand outstripping supply and the overall condition in copper to continue to tighten. The breakneck pace of gains since the November lows (82 cents a pound) should give some pause to fresh buyers, as a continued march higher in prices might have to be accompanied by a more significant improvement in the global economy. Given the sharp upward movement in copper prices, that could mean the trade needs a lower Dollar, decent economic readings and a higher equity market to manage even more gains today.

Metals Market Commentary – 2010.12.31

by Dave Hightower on December 31, 2010

OUTSIDE MARKET DEVELOPMENTS: While equity markets in Asia were mixed, stock indices in Europe are generally weaker during overnight trading. Early indications are for the US stock market to open close to unchanged levels this morning. The Dollar is lower against most of the major currencies during overnight trading, although posting a small gain versus the Swiss Franc. News reports indicate that China may not institute export quotas for “rare earth” minerals during the second half of 2011. The President of China said that a global recovery will remain difficult. Estonia will become the 17th member of the Euro zone tomorrow. A private survey of UK Housing Prices during December was up 0.4% year-on-year, higher than estimates. The only US economic number to be released this morning will be a private survey of NY Purchasing Managers, released at 7:30 AM.

GOLD MARKET FUNDAMENTALS: February gold comes into the last trading day of 2010 sitting within $3 of this week’s high and within $20 of the contract highs. Not surprisingly, the gold market seems to have mostly discounted news of a softer December Indian gold import tally of 20 to 25 tons, but the trade was expecting a decline in that figure, because high flat prices of gold were expected to discourage some Indian gold buyers. The fact that December 2010 Indian gold imports might have been as much as 19 tons below the 2009 level doesn’t seem to be weighing that heavily on gold prices this morning, as the trade continues to give investment demand the dominating role in the marketplace. The gold market might pay some attention to the New York ISM figures today, as stronger than expected US data yesterday seemed to temporarily undermine the gold market, even though the Dollar yesterday generally remained weak in the wake of the data flows. More than likely the Press will be rife with stories on the stellar annual performance of gold and while that might provide the bulls with ongoing confidence, some traders could come away from that news worried about an overbought technical condition. Comex Gold Stocks were pegged at 11.643 million ounces up 16,861 ounces. Stocks have declined 12 of the last 20 days.

SILVER MARKET FUNDAMENTALS: The March silver market sits just below the recent contract highs in the early Friday morning trade. With a weaker Dollar early and a lack of definitive direction in global equity markets, the bull camp is probably capable of maintaining its edge, especially if market conditions are thin. While gold seemed to be undermined by better than expected scheduled data yesterday, the silver market has been firming up its correlation with copper and industrial metals markets recently and that could mean that favorable US data today could lend support to silver prices. Not surprisingly, the silver market continues to get mostly favorable press coverage overnight, with even more coverage suggesting that silver appears to be a cheaper in play than gold. Comex Silver Stocks were 104.707 million ounces up 835,527 ounces. Silver stocks have declined 13 of the last 20 days.

PLATINUM: The April platinum contract forged an unusually wide trading range overnight of roughly $37 an ounce. Some players suggested that the sharp probe down overnight prompted value hunting buying of platinum overnight. The platinum market does have the benefit of a weaker Dollar, favorable long term metals price predictions and ideas that platinum production can’t be expanded easily in the face of surging global investment demand. Into the last day of 2010, April platinum still sits roughly $560 an ounce below the March 2008 highs!

Morning Market Update – 2010.12.30

by Dave Hightower on December 30, 2010

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Interest Rate Market Commentary – 2010.12.30

by Dave Hightower on December 30, 2010

Treasury bonds start the second last trading day of 2010 near the upper end of the last three weeks trading range, with the market managing to recover yesterday in the wake of a surprisingly solid 7 Year US note auction. Perhaps the US Treasury market is destined to get a measure of support from flight to quality interest in the lead up to an Italian long term debt instrument auction this morning. However, the initial tilt in prices in the early action today is pointing to modest weakness because of residual optimism on US holiday sales and also because of a general expectation to see US initial claims post another modest decline. The market will also be presented with an ISM/PMI from Chicago, Pending Home sales and a KC Fed manufacturing report. Expectations call for the PMI readings to be soft, while the Pending Home sales might post a minor rise. Therefore, the overall impact from the scheduled US data today doesn’t look to be overly significant. From the overnight action, the trade was presented with news of a slight softening of Chinese purchasing manager’s readings and news that North Korea was employing some new mechanized vehicles. In a potentially negative international development overnight, an official from the BOE suggested that the UK economy needed to see “higher” interest rates to “boost” its economy! The BOE official also suggested that higher interest rates would also have the impact of “keeping a lid on inflation”. With equity prices hovering near new highs for the move into the Thursday morning opening, it is possible that Treasuries are feeling a bit of indirect pressure from the combination of rising equities and favorable holiday sales dialogue. With the end of the auction cycle yesterday, the Treasury market should give the scheduled data a little more credence today, especially if the data manages to point in a definitive direction. With metals and other physical commodities managing distinct upside action again overnight that favors optimistic economic views and in turn fans the inflation expectations again. Therefore, unless the data is definitively weak, the bear camp looks to start out the session with a minor edge.

Currency Market Commentary – 2010.12.30

by Dave Hightower on December 30, 2010

DOLLAR: The Dollar has been relatively quiet during the overnight session, but remains under moderate pressure this morning. With a lack of substantive news during the post-holiday period, the Dollar has been weakened by a series of well-received US Treasury note auctions over the past few days. During the current news “drought”, some traders have taken these results as evidence that US yields will remain low for an extended period. Today’s session will hopefully produce more substantive information for the market to digest, with several US economic numbers released during the first few hours. If today’s data can renew some confidence in the US economy, then the Dollar stands a reasonable chance of regaining some of this week’s lost ground. The Dollar may find support near the 79.80 level this morning, but thin trading conditions could lead to a further extension of this week’s lackluster sell off.

EURO: The March Euro continues to hold recent gains, proving the adage that “silence is golden”. Quiet from the problem areas of the EU has allowed the March Euro to rebound from the recent lows, even with the understanding that there are likely to be Euro zone risk flare-ups within the first few weeks of 2011. Today’s Italian debt auction may have eased some concerns with the level of participation during the holidays, but higher yields tend to paper over many potential problems. The March Euro could retest this week’s highs near the 132.75 level later today, but a strong move higher may require some further improvement with the underlying EU situation.

YEN: The March Yen has maintained a strong upward trajectory this week, and was able to reach up towards a 7-week high before giving back a portion of today’s gains during the past few hours. A large part of the recent strength in the March Yen may be due to short-covering and end-of-year repatriation of overseas funds, as recent Japanese data continues to point towards a weak economy. Sharp gains with the March Yen are not going to go over well with Japanese export firms, and pressure may come down on officials to take some action if this strength continues through the New Year. The March Yen could find resistance near the 123.05 level, but good US economic data this morning could turn this rally around.

SWISS: The March Swiss continues to rocket higher today, producing another new all-time high during overnight trading. This recent strength in the March Swiss may be a sign that market problems could occur soon after the New Year, as safe-haven support has accounted for a 21/2 cent gain during the past three sessions. The March Swiss is likely to maintain this sharp rally through the rest of the session, but it may see a pullback toward the 106.20 level if this upward momentum runs out of steam.

POUND: The March Pound failed to build on overnight strength, and has turned sharply around to the downside during the past few hours. End-of-year market liquidity may be a likely culprit, but it has been recent UK economic data which has pushed the March Pound down towards the lower end of this recent sell off. The March Pound is likely to find support near the 154.00 level again, but in these thin markets another test of the recent lows later today would not be out of the question.

CANADIAN DOLLAR: The March Canadian remains close to the recent highs for the move, but has once again been reluctant to make an upside breakout. Commodity prices have lost some of their initial steam this morning, but the March Canadian should continue to be well supported even during these thin market conditions. The March Canadian may drift towards support near the 99.50 level this morning, but a broad-based commodity rally could trigger a retest of this week’s highs for the move.

TODAY’S MARKET IDEAS: The Dollar is likely to start the morning under some pressure, but decent US economic data could help to lift prices back into positive territory. The March Canadian could make an upside breakout if commodity prices become strong again during today’s session.

Stock Market Commentary – 2010.12.30

by Dave Hightower on December 30, 2010

Global equity markets experienced a mixed trade overnight that turned fractionally lower during European hours. The Japanese Nikkei index ended the final trading day of 2010 with a negative performance with export companies feeling the pinch of a rising Japanese Yen. Strong export growth seemed to be a key factor behind this morning’s action from Taiwan to hike their short term interest rates to help temper growth. While Chinese manufacturing activity showed signs of moderating in a report overnight, it does suggest that the PBOC is likely to stick to its gradual attack on inflation. Copper and other precious metals established new contract highs overnight, and that suggests that world demand remains unaffected by the latest attempts by China and Taiwan to hike rates to rein in inflation. Chinese officials responded to their decision to reduce export quotas of rare-earth minerals saying that they meet with World Trade Organization rules which provided a little retracement in related shares after strong upside Wednesday. There is a heavy slate of US economic data this morning with weekly jobless claims expected to post a slight decrease and that could be the focal point of the early trade.

S&P 500: More positive signs for the 2010 holiday shopping season lends support to the March S&P 500 to start this morning. Early reports this morning showed that 2010 online shopping reached a new record high this season, and that could provide further support to the retail sector, while also bolstering the case for improving growth in 2011. Positive action within the retail sector during Wednesday’s session was seen as contributing factor behind the index’s push to new contract highs. The next upside in the March S&P comes in at 1260.00.

DOW: The March E-mini Dow reached new contract highs during yesterday’s session supported by solid gains within energy related companies and optimistic growth outlooks for 2011. Meanwhile, there could be some concern during this morning’s trade after an early morning report showed global air freight in November backed off from October’s brisk pace, and that could be taken as a sign that global growth may be showing signs of leveling off. Near term upside targeting for the March E-mini Dow comes in at 11,574 in the day ahead.

NASDAQ: The March NASDAQ comes into today’s session fractionally higher after a narrow inside day trade Wednesday. Some traders have expressed concern with the index’s inability to establish new highs for the move, and that might be taken as a sign of weakness within the small to mid cap stocks. There is upside resistance above at 2236.75, then at last week’s highs of 2239.00.

TODAY’S MARKET IDEAS: US equity markets continue on their path of higher highs and higher lows in the face of a number of overextended sentiment readings. While the bears look to the advance decline ratio reaching the highest level in 10-years and short interest in the S&P 500 at the lowest level in four years, the bulls have embraced positive holiday shopping and sales expectations for more economic expansion in 2011. It may take a positive sweep with this morning’s flow of economic data to continue to fuel the drive higher.

Morning Market Update – 2010.12.29

by Research on December 29, 2010

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Video Update – 2010.12.28

by Research on December 28, 2010

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Cotton Market Commentary – 2010.12.28

by Terry Roggensack on December 28, 2010

The turn down in the US dollar and the already very strong export sales pace are positive forces for the market to absorb, and traders also see the need for prices to remain relatively high in order to attract 1.5-2.0 million acres for the coming season. On the other hand, fund traders and investors are shying away from cotton, according to the COT reports, and open interest has not changed much despite the 43% price gain off of the November 24th lows. In fact, the net long position of the index funds is near the low end of the 5-year history of the reports on those traders. March cotton pushed sharply lower on the session yesterday and traded down as much as the 600 point limit before a recovery bounce. The market closed near the middle of the day’s range but down 236 points on the session. News that China increased interest rates by 0.25% was seen as a bearish force for most commodity markets, but most of those markets also saw a decent recovery, as the trade saw the move as not as severe as expected. Many traders also believe that while the rate hike might slow the China economy somewhat, it will have a limited impact on the consumption pace. Even the US stock market moved from sharply lower Sunday night to trade higher into the mid-session yesterday, and other key commodity markets also saw a limited reaction to the China rate hike news. Stocks registered for delivery against ICE contracts fell to 113,486 bales from the previous total of 125,134 bales. There were 0 bales pending review. The Commitments of Traders reports as of December 21st showed non-commercial traders were net long 51,769, up just 85 contracts for the week. This is important because December 21st was the all-time high, and one would have expected funds to be buying into the highs, but this was just not the case. In fact, open interest has not changed much since the break off of the November peak. Commodity index traders held a net long position of just 58,632 contracts, which was down 1,986 for the week. These traders were net long more than 80,000 contracts in late 2009 and long 122,555 contracts back in February 2008. In other words, funds are shying away from cotton despite the extreme uptrend. Cumulative cotton export sales stand at 90.9% of the USDA forecast for the 2010/11 (current) marketing year versus a 5 year average of 55.1%. This leaves the door open for the USDA to raise exports and lower ending stocks in future supply/demand reports. In Brazil, cotton plantings are thought to be up about 44% this year to 1.2 million hectares with a production estimate around 1.84 million tonnes, up 55% from last year. Argentina plantings are thought to be up 25% to 600,000 hectares with production expected to be up 43% to more than 330,000 tonnes.

TODAY’S GUIDANCE: The fundamental setup remains supportive for old crop, but new crop will be in question if the world expands cotton plantings next year. The technical action remains negative, and the island top on December 21st is looking more and more like a major high. Support for March cotton comes in at 140.80 and 135.12 with 148.70 as resistance.

Coffee Market Commentary – 2010.12.28

by Terry Roggensack on December 28, 2010

The coffee market continues to drive towards new high closing levels, but a sharp contrast between the perception of near-term tight supplies and large production levels coming to market just beyond the horizon has left the market vulnerable to a steep pullback during the next few sessions. However, the turn down in the US dollar is a potential bullish force for most agricultural markets, and funds were active buyers in most agricultural markets for the week ending December 22nd. The post-holiday trading has been indecisive, with a large part of Europe still away and an East Coast snowstorm adding to a typical end-of-year illiquid market. March coffee was able to build upon last week’s gains yesterday and managed to finish the session at the highest close since 1997. News that the People’s Bank of China raised a benchmark Chinese interest rate over the holiday weekend put some limited pressure on the coffee market, but a lack of Arabica supplies in Europe and North America continues to be a significant underlying positive factor for prices. Favorable near-term weather conditions in Vietnam and Colombia may have limited coffee’s ability to retest the recent highs during these thin holiday markets. Given that harvest delays in Vietnam have been remedied and that lower production forecasts for next season’s Colombian and Brazilian coffee crops are still a long way off, the lack of a “current” supply problem with a market approaching new 13-year highs may leave it in search of further fundamental support in order to sustain the current prices levels. Vietnamese officials see production for the 2010/11 season (harvest about 80% complete) falling about 15% from previous forecasts to about 16.7 million bags. ICE daily exchange stocks were down 2,609 bags to 1.709 million bags with 960 bags pending review. The Commitments of Traders reports as of December 21st showed non-commercial traders were net long 39,649 contracts of coffee, an increase of 1,440 for the week. Non-commercial and nonreportable traders combined still hold a hefty net long position of 42,823 contracts, up 1,498 for the week. Commodity index traders held a net long position of 49,332 contracts, up 500 contracts for the week.

TODAY’S GUIDANCE: The surge down in the US dollar is seen as a positive factor for most agricultural markets. There is little in the way of overhead resistance up to the 1997 peak, but the reversal and a lack of a supply-side squeeze should be seen as forces that could spark a year end sell-off. A move under 228.65 for March coffee would help confirm a technical top and leave the market more vulnerable to some long liquidation selling from speculators into the end of the year. If that level is violated, support should emerge near 225.70 and 220.62. If we see new highs, the next resistance is all the way up to 270.00.

TODAY’S MARKET IDEAS: Position traders can wait until outside forces turn negative and also wait for an extreme overbought condition.

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