FROSTY FUTURES OCT. 23, 2003

TECH DATA FOR FRIDAY OCT. 24.

DOW R=9625; 9675; 9725. S=9550; 9490.

SPX R=1038; 1042; 1045. S=1026; 1022; 1013.

NDX R=1387; 1396; 1409. S=1369; 1361; 1350.

USZ R=10816; 10908; 10918. S=10714; 10708; 10606.

GCZ R=388; 394. S=383; 381; 377.

SIZ R=519; 523; 528. S=509; 507; 498.

DXZ R=9184; 9194; 9200. S=9155; 9140; 9070.

CLZ R=3070; 3120. S=3000; 2940; 2920.

SX R=768; 782. S=760; 751; 739.

WZ R=375; 379. S=364; 359; 354.

COMMENTARY

INDICES

Today’s low and reversal may have been a reaction to a 50% retracement of the Dow rally from 9240 up to 9850. The rally wasn’t very impressive so we might expect to see more downside in days to come. The SPX reversal can be explained by the test of the gap from Thursday and Friday Oct. 2 and 3. Barely one-third of the previous day’s drop was recovered. This, too, was not particularly impressive. And while the NDX did follow suite by reversing off the day’s low, it remains a fact that the pattern was a lower low, lower high, lower close. A typical in-trend pattern remaining negative. This all is in the context of a secular uptrend from lows established a year ago, although the momentum is slowing significantly.

INTEREST RATE

The longbond EKG reflects so much uncertainty that each day (each hour) a new report is digested the trend changes reflecting reaction rather than anticipation. Take it a day at a time. If, as, when equities improve no doubt treasuries will drop in price. Until then you will make more money being stopped into trades rather than picking bottoms or tops. By that I mean if the market turns on or near a published support or resistance point, enter your order to go with the flow. Don’t anticipate that those support and resistance areas are, by necessity, valid. Let the market turn first.

METALS

Gold’s bounce this week kind of caught me off guard. I really expected the Dollar to hold stronger, even though I have been bearish the Buck. Stronger exports lulled me into belief our currency had depreciated sufficiently. Wrong! This is another example of what happens when I place "what oughta’ be" in front of what is. Sorry. Resistance at 380 Dec Gold looks pretty strong, so let’s see what happens overnight. Silver may make it into overhead between 525-535. There might be sufficient spreading between the white metal and the yellow to allow this to happen, but don’t bet the farm. Copper price has responded to cuts in production at a time when usage from China and India has picked up. It’s amazing what can happen to an economy when jobs are moved from the US to foreign shores. Globalization,…ain’t it great? What are these global capitalists going to do when 25% of the American middle class are reduced to the poverty level? Live in San Tropez? And how are members of the Senate and House going to go home and live with their neighbors and sit comfortably in church pews? If you think an ignorant mass of people is dangerous, just wait till you see what an educated American middle class can do. There exists a group of pseudo-smart asses that better get the shit out from between their ears. This is the impetus behind the strength in gold. Fiat currency is becoming questionable as a store of value. You can’t stop that.

CURRENCY

SEE GOLD COMMENT ABOVE.

CATTLE

Option premiums have really come down. April live cattle, for example, has dropped 500-600 points from top to bottom (so far) and the 76 strike puts I paid 200-points for have rallied (all the way) up to 260-points. Once the live contract has activity the past month out of its system we need to expect to see seasonal rallies take place into springtime. So it’s going to be hard to make money in this pit. While probably not as high as in the recent past, volatility will remain high. So you should be patient if trading to avoid entering longs or shorts prematurely. Feeders will be more active because of the seasonal swing coupled with the rise in price of meal and corn.

ENERGY

Basis Dec crude, 3075 may prove to be stiff resistance since the recent decline. We should know by tomorrow’s close. If price is below that level Friday evening, I would be more inclined to leave short positions on for the weekend. If not, I’d bail and wait for Sunday night or Monday morning to examine things. Take advantage of the soft price in natural gas to establish vertical call spreads. Originally I suggested doing the Jan 600-700 contracts below 25-cents (I wanted them at 23) but wound up getting more done in February contract at 21. To clarify, buy the Feb 600 call and sell the Feb 700 call.

SOFTS

Dec Cocoa is vulnerable to a drop down to the area around 1250. Harvest, reduction of hostilities, and big money has turned the trend down. There is support near 1250, being reflected by today’s rally. But it doesn’t appear to be particularly strong. However, should cocoa be caught up in an overall commodity rally then this level will hold. You just have to be prepared for either. If support for coffee continues there will be very little selling until the Dec contract makes it to 6450. Watch volume and commitments at that period. If volume picks up and price declines, a new target near 5850 comes into play. Obviously sugar stocks are high and demand has waned. Expect continued consolidation until floating stocks decline. Cotton just continues to roll. Can it make it to the magic one-dollar mark? I wish I could assure you that the worst was behind us in the OJ pit, but such is not the case. The weak rally is not something I can forecast as sustainable. That being said, I repeat, use this weakness to get long call options in the March contract. All in all, prices are relatively cheap and then the big boys can’t force you out when, finally, the winter freeze premium is installed in the price structure.

GRAINS

Beans should be near a top, but watch the spreads for a true indication. Now the construct is such that a typical bullish profile exists. But as momentum wanes the nearby contracts will begin to lose to the deferreds. That will be your signal. Wheat may be near a top after this week’s rally, as well as corn.



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.