FROSTY FUTURES JAN. 22, 2004

TECH DATA FOR FRIDAY JAN. 23.

DOW R=10645; 10660; 10715. S=10608; 10550; 10490.

SPX R=1149; 1151; 1157. S=1138; 1132; 1124.

NDX R=1549; 1556; 1560. S=1529; 1513; 1490.

MAR TBOND R=11307; 11316; 11322. S=11227; 11223; 11207.

APR GOLD R=415; 418; 423. S=409; 407; 404.

MAR SILVER R=641; 652; 661. S=627; 616; 605.

MAR DOLLAR R=8638; 8695; 8750. S=8592; 8550; 8510.

MAR CRUDE R=3510; 3575; 3675. S=3440; 3410; 3290.

MAR NAT GAS R=600; 635; 650. S=580; 565; 545.

MAY BEANS R=845; 850; 862. S=828; 820; 809.

MAY WHEAT R=400; 403; 408. S=387; 383; 368.

MAY CORN R=282; 283; 285. S=276; 273; 269.

COMMENTARY

INDICES

The Dow is approaching its technical target of 10,700. It rallied today (Thursday) but couldn’t make much headway. So, either it’s gathering strength for a punch through resistance or it’s losing steam as the target gets closer. Weakness in NDX would lead us to believe that there is more "scared money" than confidence. This is consistent with the theory that the market loves to climb a wall of worry. But keep in mind that quite often after a market reaches its technical targets there are corrections. See TECH DATA for support and resistance areas on the Dow, SPX and NDX.

INTEREST RATES

Longbond has broken out of its 11100-10700 range and is probably going to find some resistance hard to penetrate near 11400. The odds of March contract reaching that level are quite good. That being said, I suggest traders begin to establish short positions at that point in the options sector. You may begin by going long the April 108 puts under 40/64. This will get you in for about $625.00 per contract. In addition it gives us about 30 days to play without a big reduction in time premium. The fact that premiums are expensive is a good indication that market players are discounting volatility.

METALS

Gold’s recent consolidation in the face of the three-day decline in the Dollar Index is interesting. Anecdotal evidence could be indicating this is just that; a three day reversal off a longer-term corrective move upward after its yearlong drop. Should gold drop out the bottom of its consolidation then support should be found in the area of 393-397. If my logic is valid and correct, then silver should find support near 580-570. High-grade copper is enjoying demand from countries that are manufacturing hardgoods. The domestic housing market remains fairly robust and weakness in the buck is supporting price. Believe it or not, on the monthly chart, there is some resistance near 115, but the target remains 120 by the end of this month. That’s nine days from now.

CURRENCY

Many of you know that I recognized support for the buck exactly where it came in. I prognosticated a rally of 25% of the major down move, back to 9400. It got up to 8817 before petering out. Given the current pattern this could be merely a three-day correction. But even if it is not, I doubt if we will see a big down move from here. Odds are some consolidation is taking place and that a trading range will be established from just below contract lows, probably back to 9400.

CATTLE

I like the pattern on April Feeder daily charts. Solid parameters are in place, the violation of which should be solid evidence of directionality. A close above 8750 indicates a move to 8950. A close below 8500 indicates a move to 8350. Big discount of live cattle futures to cash is supportive to nearby contracts but deferred are skeptical of future supply/demand figures. Going into Feb-Mar-Apr I think it may be prudent, or just OK, for traders to be buyers of Apr contract on breaks. But for God’s sake use stops. Once the market breaks from here it’s "down-down-down" into the Ring of Fire. As for me, I am not playing in the cattle pit. Cattle of mine are hedged, now on someone else’s money, and I’m just letting them feed out hoping that price stays in the black.

ENERGY

OPEC is laughing in our faces as price of crude maintains strength. Of course if we were buying crude in Euro’s things wouldn’t seem so expensive. Be that as it may, it is economic and fiscal policy that has weakened our dollar. Past policy errors on the part of the US Treasury, IMF and World Bank have made powerful enemies throughout the world. It could be that as those errors in judgment are corrected our currency, read that our taxpayers, are paying the price. Fed policy is working very hard to keep inflation and interest rates low. For how long the cork can hold the floodwaters remains to be seen. For more on this read GLOBALIZATION AND ITS DISCONTENTS by Joseph Stiglitz. Then follow up in current events for an idea of where we are today. You can bet OPEC leaders are. As far as nat gas is concerned, it’s supposed to be cold and colder.

SOFTS

Cocoa has presented a chart pattern indicating a desire to go back to 1800. A close below 1600 negates that and opens the charts for a test of 1460. Wednesday’s reversal in coffee stimulated cool observers to call, prematurely, for a top. Today’s reversal of the reversal cost some traders some money. Keep in mind that for as long as the called-for shortfall in supply is at the forefront breaks are going to be supported, especially with a weak dollar. Note that coffee fell in London this AM, but rallied strongly in the US with the weakness in the buck. Most pronounced on the sugar daily chart is the large space between the 10-day MA and the 30-day. Don’t be surprised by a rally back to 600 basis March. Fundamentals remain strong in cotton. Penetration of resistance should lead to test of the gap left last Oct near 8000. I will call for a range trade in OJ between 6100-6700 basis March and 6400-7000 basis May. I’ve been wrong on this market for the past six-months, so don’t expect much now. Who would have thought a diet could have this affect on OJ?

GRAINS

Demand remains strong for beans and that coupled with a little dryness in Argentina seems to be supportive. But soon the Brazilian crop will begin to be discounted by traders and that should put a cap on the market. That’s a hell of a gap left on the weekly chart for corn and its tech target has been met. Speculative selling off the top today put me short the May contract so we will see what happens tomorrow. Wheat also looks weak and a May contract close below 387 indicates a test of 375-370 is in order. KC wheat also looks toppy.

CONTACT ME: williamfrost@comcast.net or call 615 331 8567.

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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.