FROSTY FUTURES

AUGUST 16, 2004

TECH DATA MONDAY AUGUST 16.

DOW R=9955; 10030; 10085. S=9783; 9629; 9584.

SPX R=1072; 1080; 1085. S=1053; 1036; 1029.

NDX R=1325; 1330; 1336. S=1300; 1280; 1257.

USU R=11117; 11200; 11215. S=11018; 11006; 10915.

GCV R=405; 408; 412. S=397; 393; 391.

SIU R=683; 691; 708. S=663; 659; 649.

DXU R=8830 8875; 8911. S=8790; 8730; 8719.

CLV R=4640; 4696; 4738. S=4507; 4406; 4309.

SX R=589; 599; 606. S=569; 565; 553.

CZ R=231; 236; 239. S=225; 222; 219.

WZ R=3218; 324; 328. S=311; 306; 301.

COMMENTARY

INDICES

Stocks remain inside an area of consolidation. I am skeptical of the potential of an important rally should the consolidation resolve to the upside. I will be watching Fibonacci retracement points in such a case. If the market resolves the consolidation to the downside, I think liquidation by fund managers will combine with aggressive shorting by professionals to exacerbate the downdraft and force DOW price down into 9000. SPX and NDX can’t be far behind.

INTEREST RATES

In previous letters I went along with the idea of higher interest rates, forgetting the elasticity of the yield curve. Now, with short-term rates increasing, long-term rates are declining. It has been pointed out by better economists/analysts than I, that this trend might "have legs." This means that as traders we have to watch the chart patterns for signs we can recognize and go with them rather than looking at fundamentals and forecasting "what ought to be."

METALS

Oct Gold will indicate a continuation of the rally should it close above 402. By the way, Oct is now the spot month, top step on the Comex. Sep Silver will nail the floor down should it be able to close above 678. Absent that success, we should expect some backfilling and testing of support.

CURRENCY

American’s reception during the Olympic parade impressed me. Even granting that the crowd had many from America present, there were few catcalls, etc. heard. This bit of trivial anecdotal evidence may indicate most of the world doesn’t think we are the second devil, even if many of us believe our government erred in the mid-east. That being said, the trend for the Buck remains down. It will take a series of closes above 9200 to break that trend. And keep, somewhere, in the back of your mind that the original technical target for a rebound off support was the 9300-9400 level. So even if the current downtrend is broken, the rally will be suspect.

ENERGY

Many of us saw the interview last week on the financial news with T. Boone Pickens, renowned Texas oilman. Pickens said he believed oil would hit $50.00 before it hit $30.00. His reasoning was that there is about 85 million-bpd available in the US, about 85 million-bpd being used. That to him meant the market was in balance and it is a demand driven market, forcing price higher. When energy stats came out Pickens was proven to be pretty close on his estimates. Cooler temps this summer in much of the country have reduced demand for nat gas. This has allowed for some increase in storage. It may also indicate a very cold winter. Given the potential for serious volatility I suggest you look at options and do something conservative, but with a good potential for profit.

SOFTS

Hurricane damaged the fruit trees in three of Florida’s highest producing counties. The question now is how many days of limit up we might see? Watch the options market for the best indications. The nearby, at the money calls will give the clearest indications, but that is not an infallible answer.

Best to all,

Bill