FROSTY FUTURES OCT. 16, 2003

TECH DATA FOR FRIDAY OCT. 17.

DOW R=9825; 9832; 9850. S=9730; 9680; 9625.

SPX R=1053; 1055; 1065. S=1044; 1041; 1039.

NDX R=1428; 1475. S=1411; 1405; 1392; 1375.

USZ R=10610; 10704. S=10522; 10514; 10422.

GCZ R=376; 378; 382. S=371; 369; 365; 356.

SIZ R=499; 508; 519. S=484; 481; 474.

DXZ R=9350; 9370; 9435. S=9260; 9210; 9160.

CLZ R=3190; 3210. S=3110; 3040; 2990.

SX R=729; 73; 740; 745. S=720; 711; 701.

WZ R=338; 343; 348. S=333; 328; 325; 321.

COMMENTARY

INDICES

Stocks are vulnerable now as they haven’t been in over a year. You can see skepticism, mistrust, negative expectation or whatever you choose to call it all over charts as price activity is logged. The old adage about climbing a wall of worry has held true but as adages do, this one might have worn itself out. I won’t predict a drop as severe as the drop in ’87 or the last three Fall-Of-The-Year drops, but I will tell you the market is set up for just such a drop. More than one of my better accounts has positioned themselves to benefit by such an event. And these folks do not throw money around loosely. So, "Is it going to happen?" you ask. I don’t know…I just know what some of the smart money is doing. You take it from here.

INTEREST RATE

The longbond didn’t hold in the 10700-support area. It is digging deeper into old price structures. Even if stocks don’t tumble a good bet would be to get long the Dec contract on a test of the 10500-10400 strip. Chances are, absent inflation or a disaster in the Dollar that level will hold and a subsequent rally back into the 10800 area will unfold. So there are two reasons to be prepared to be long bonds. First because stocks may take a dive and second because the contract is nearing good support.

METALS

Please note the difference in the structure of the gold chart and the T-Bond chart. While bond prices have declined significantly on a relative basis, gold has corrected only a very small amount. This tells me that gold bugs are willing to buy dips in a more aggressive fashion than bond bulls are. The daily gold chart looks vulnerable to a setback of significant proportions, maybe 20 or 30 bucks an oz. And this vulnerability would play into the hands of "market movers" by sucking up some weak handed players and then bouncing like a diver off a springboard. So if gold takes a strong dip, place buy stop orders over the market to get long as the momentum carries price to peak. Silver may be a better play. Copper is already very high on a relative basis. But there is nothing saying it won’t go higher.

CURRENCY

A rumor wafted across the trading broadband that the Dollar may have hit a low and sure enough a rally has ensued. It’s funny how that works. A change in psychology, just like the in the Cubbies game, and the world changes. Whereas we will find out tonight if the Series is going to be Yanks or Bosox against the Marlins, we might have to wait a while longer to find if the Buck as found a bottom.

ENERGY

So what the hell is the big deal about Venezuela trying to establish a crude price band of 25 to 32 per/brl? Sell it. It’s at 32, or right next to it. If your fear is greater than your greed, go play pool, but don’t bet. And you natural gas players who want to believe Greenspan might be right, eventually, about natural gas reserves should have resting orders to get long (what you can afford to carry) on a further drop in price. The way I am suggesting players handle it is to buy the Six-Dollar/Seven Dollar vertical call spread in Jan contracts for less than 25-cents. I want them at 23, but the pricks on the floor want 27. That tells me they can read the psychology of the market place just as well or better than I can and they ain’t goin’ to give not’in away. Be patient, let them come to us. And if they don’t you can curse me for keeping you out of a great trade. Or you can pay up, it’s up to you, as always. This is rank speculation, you can lose your money, etc, etc.

CATTLE

History repeats itself. And from these lofty levels cattle prices will decline to, or near, record lows. Price gyrations will make it difficult to make money and option premiums are ridiculous. I talked one guy into buying puts one day from the top and he had cattle to hedge. Everyone else acted like a deer in the headlights. I can’t blame you too much though. The guy paid two hundred points for an April put that was 850-points out of the money. But he trusted me, or he knew a hell of a lot about cattle. Maybe both. Short feeders on rallies. If the live cattle market goes down the price of feeders, from this level, will dive like an Acapulco kid.

SOFTS

Cocoa is on important support. A Friday close below 1450 should stimulate another leg down. If you want to play it from the long side, that is your break point. Coffee, never far from cocoa for long, is near minor support at 60 but better support is to be found at 56. Buyer beware! Sugar might also be worthy of a shot at the long side but here again, support is weak at 580, stronger at 550. Cotton took off and left us. It will top out somewhere but it could easily go to a dollar if demand from China continues. Remember, they don’t have high wages to pay, so they will run the price of the raw commodity up. OK, OK, the OJ pit is making a mockery of my insistence prices will go up. And I guess as long as I keep talking people into buying OJ the big five will keep selling it to them. And at lower and lower prices. So, if you haven’t lost your shirt yet and want more, get long OJ. Now that it’s this cheap the options, even out in March, aren’t that expensive. And if the powers go after the stops under 65 cents they won’t take you out.

GRAINS

It was amazing to me (yes I can become amazed, even after 25 years of trading) to see beans take off and corn and wheat get pummeled. But good foreign demand for US beans, regardless of the reason, will slow if the Dollar strengthens. And with South America coming on line with a 60-million tonne crop next year, this years bean price does have a ceiling.

CONTACT ME: williamfrost@comcast.net or call 615 331 9567.

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Trading futures is for individuals willing to assume greater risk for the opportunity of greater rewards. Only speculative capital should be used. Past performance is no assurance of future profits. Information contained herein is believed reliable but original sources of data have not been independently verified therefore is not guaranteed. Ideas and suggestions are the opinion of the writer and are subject to change at any time. Nothing herein should be construed to be a solicitation to trade futures or options. Hedgers should have a defined plan.