Monday, December 4, 2006

12/4/2006 Morning Market Comment

These next 10 trading days will be the busiest for the rest of the year. Once we get into the trading week of the 18th, the market will start coasting toward the Christmas holiday weekend, and then the following holiday week will be dead barring surprises similar to what we saw Thanksgiving week.

There's a small dead cat bounce in the dollar this morning as investors await more pieces of the economic puzzle. Tuesday features the release of factory orders figures. Usually that number would be overshadowed by this Friday’s release of the monthly unemployment data, but following the weak manufacturing reports of last week investors are now scounging for any piece of data they can find. The factory orders are expected to show a decline of 3.8%.

As for those Friday employment numbers, economists are are looking for payrolls to rise by 113k with unemployment of 4.5%. I wouldn’t be surprised if there is a downward revision by economists to payrolls ahead of the release in the aftermath of recent gains in the weekly jobless claims data.

This leaves the Euro down just a meager 24 ticks this morning at 1.3321 as traders anticipate the economic data and the widely expected quarter point rate increase by the ECB on Thursday. What Trichet will say at the Thursday press conference is also a big open question.

As the dollar consolidates, gold also takes a breather with a minor consolidation for the December contract in the $644 area, The large specs remain bullish according to the COT data with 120k long contracts vs 40k short positions. Jim Sinclair over at has become near term wildly bullish on gold and that makes me feel very comfortable about our holdings in gold!

Crude oil and natural gas are both lower. Crude bumped into resistance last night as it approached $64 a barrel and is likely to trade in choppy fashion between now and the December 14th OPEC meeting. Nat gas hit a brick wall at $9.05 last week after a big run on the "rumor", or expectation for colder weather - and has since sold off on the "fact" that the cold is now here. Nat gas is also hobbled by above average underground storage of more than 3 Tcf. While NOAA continues to forecast above average temps for the entire winter, private forecasters who we follow still see much colder than average temps in January and February; so we are NOT going to sell natural gas short into expected moderating temps in mid December unless there's a change in the Jan/Feb outlook by the private forecasters.

Friday's 100 point bounce off the lows for the cash Dow could invite some follow through upside action in the stock market, though dollar drama and economic worries will remain a tough wall of worry for the bulls to climb. But this is "the most beautiful time of the year" as Andy Williams sings and fund managers are under pressure to dress things up, so seasonality rallies can't be ruled out. I think that's an insane reason to buy amid a housing bust that's spreading into manufacturing, but to each his own. Pfizer's more than 14% crash will also impair the Dow, since PFE's drop will slice about 30 off the the blue chip indicator. As if to throw a bone out to the bulls, Bank of New York is buying Mellon for a bit of deal making cheer; both are bid higher in pre market trading.

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