FROSTY FUTURES

THURSDAY OCT. 7, 2004

INDICES

It’s no great insight to say that, all in all, the major market indices are continuing their pattern of range trading. Looking at weekly charts of the Dow, S&P, NDX, COMP and RUT can give a good perspective. NDX, COMP, S&P and RUT are slightly stronger at present than the Dow. But all the charts reflect a gradual ebb and flow of money into and out of markets. The Oil Service index chart (OSX) is much stronger than the Microchip index chart (SOX). As a matter of fact, they are just about mirror opposites of one another. Does this tell us anything futuristically? No, it does not. We can say…"Well, if this continues…" and postulate the obvious. But it gives not one twit of insight as to what to do presently. Market optimists will, and do, say to pick good stocks and don’t worry about the Indices. Market pessimists will, and do, say to get completely out of long stock positions, sell short where appropriate and make sure your commodity accounts are well funded. For those of you who are Index traders, this may be a good time to exercise your trading discipline. Short-term trading is a good thing if you have time to monitor the screen and move money in and out. Ranges are pretty well defined and risk is part of the discipline. I’ll leave it at that.

INTEREST RATES

The longbond (30-yr.) has presented a double top (within one tick) on weekly continuation charts, a bearish indicator. The Ten-year has a triple-top formation, not quite as strong an indicator, but bearish, nonetheless on the same style chart. Political jawboning and "fear of falling" (into recession, dollar devaluation) are good reasons to explain the ebb and flow of money in this sector. When market participants are convinced domestic job growth is going to be positive rates jump, prices fall. When market participants are convinced the economy is failing, or flailing, rates drop and prices go higher. Until a trend develops, this area remains, like stock index markets, a trading affair.

METALS

Three base metals gave indications this week of reaching highs. Only one has proved to be, so far, valid. Silver and Copper took out resistance and made new highs for this move. Gold has failed at the 423-resistance level, at least for the time being. Support for silver and copper now becomes the breakout levels. Keep in mind that both silver and copper are much more elastic, most of the time, than is gold. So, this breakout might turn out to be a false positive. (After a couple heart procedures I can use that fancy term). Good support for Gold will be found near 412. New resistance on silver charts should be found in the area of 7.35-7.50. Support should be found in the area of 6.87-6.72. Keep in mind the greater elasticity factor mentioned above if you question the wide areas between support and resistance in the silver statement.

CURRENCY

The Buck sucks. Good for exports. That statement is in lieu of something intelligent. If you recall I wrote, back in February or March (check the archives if you want) that the Dollar was due to rally into the area of 9300-9500. It got as high as 9250 in May and turned on a dime (pardon the pun). But now what? I don’t know. You can see the base of support that has been present near 8700. Will that hold? Will the 8500 level be tested and will that hold? I DON’T KNOW.

CATTLE

Cow-calf operators are the only ones making any money. You can’t buy a stocker, send it to a feedlot after a few weeks backgrounding and make any money. And it’s risky business to buy a calf, take it away from Mama, put it on hay and grass to grow before taking it to the feedlot. If you trade futures expect more of the same trading range with a tendency to break support levels from time to time. Take a good look at the pattern on feeder charts. It’s very interesting. New contracts come in low and rally, but each succeeding contract fails to rally as high as the previous contract.

ENERGY

The new target on crude is 55.00. Now you see why I suggested you stick with buying puts. When you are as off as I have been on timing we only lose a little money, not the homestead. One of my friends/clients kindly put it…"But you are usually right in the long run. Almost everytime." (Thanks Bert). To rationalize just a trifle (I usually don’t) keep in mind that when market pundits credit China for current demand excesses that China uses a heck of a lot more coal than they do oil. And if there is one thing that has been proven over the years relative to commodity trading it is that China ain’t stupid. And you can take that to the bank! So I hold steady my thesis that crude will break and when it does it will become oversold. Oversold in my estimation is near 20.00 or below. Natural gas is riding a good head of steam. It may make it to 8.00, but I would begin to expect some corrective action soon. Profit taking should bring the nearby contract down to the 6.25 level. Unfortunately options are not liquid and futures margins are very high. So you rich folks can get richer if you get it right, but you poor folks better find a better market to trade.

SOFTS

The International Sugar Agreement has been supportive of world sugar prices. How much of that is currently discounted is the question. Go with the breakout, use close stops. Daily coffee charts have presented an island top. Be careful if you are bullish. Watch cotton price to see if support holds. Some damage to the crop because of the hurricanes is undeniable. If support holds, demand should improve price. Use pullbacks in OJ to establish long positions in the March and May contracts. This should be a longterm bullish market, taking price back to the 1.10-1.15 level.

Best to all,

Bill

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

TO SUBSCRIBE: www.frostyfutures.com.

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 just that. Nothing herein should be construed to be a solicitation to trade futures or options. Hedgers should have a defined plan.