FROSTY FUTURES

FRIDAY MAY 6, 2005


INDICES

The Dow tested and took out last week’s highs. The target on this move is the area around 10,470. Support is now the old resistance around 10,260. There seems to be a growing confidence underlying the market as presented by cash coming into the market, in spite of Ford and GM’s bonds being rated junk by Standard and Poor’s bond rating service. It’s a high tech world after all and auto companies, particularly domestic ones, no longer hold the economic weight of old. Most of you who read my column know that I hold GE common stock as a measuring tool relative to the general health of the overall market. If we have ever seen a flat market, we are certainly in one now, as measure by that tool. So remember to take this into account while making your trading strategies in the Index futures, whether the Dow, S&P or NDX.

INTEREST RATES

The long bond is in a consolidation pattern between 11300 and 11520. Next Thursday’s econ reports may well be the straws that break the camel’s back and this week’s hints at downside volatility come to pass. Right now the market is balanced between interest rate bulls and bears. News comes out and a quick reaction is followed by a return to pre-news levels. There is substantial loose money in this pit and the rodeo clowns are putting as much of it in their barrel as they can. My own bias is to see higher rates therefore lower bond price. If they don’t move by the end of trade next Thursday I will probably take my loss on my bond option strategy and move on to the next trade.

METALS

June gold should find strong support near 423.60. RSI readings are positive on a trending basis and there are so many cross-currents in economic flux gold may rally just as a result of finding and reflecting a standard of value. If not, it won’t be difficult to tell. A test of the Feb lows will follow. Silver, should the overall economy be validated as on a positive trend may gain on gold, on a relative basis.

CURRENCY

The Dollar is doing its darndest to establish a low and begin an uptrend. At least money managers worldwide are looking at it that way. There are fewer Dollar bears now than there have been in quite awhile. No one wants to get caught predicting new lows at what might be the bottom. At least, not I. If this is as low as the Buck can go in the face of such aggressive bearish consensus, shorts need to beware of a kickback explosion as the engine builds momentum from fire but without anyway to let the pressure off. (If you don’t get the analogy, talk to someone who has tried to kick-start a motorcycle without releasing the compression. The engine doesn’t start, but the bruise on your shin is enough to make you cry).

CATTLE

Live cattle prices for summer are at the low end of trading ranges. How much longer this tremendous bullish configuration will last remains to be seen. I suggested to some of my old cattle hedgers that they take advantage of cheap puts and place a floor under their production for summer. There was not one taker. This reflects an attitude common among this breed, to wit: “It’ll never end.”

ENERGY

A mini-rally is taking place in these pits after the break. I believe the configuration reflects a broad distributive top, at least for the time being. Resistance on nearby futures should be contained under 5500, with the possibility of reaching up to 5576 as they clear out the stops around the 5500 level. The downside target of this distributive top is 4672. Spot month unleaded has had two closes below the 100-day MA and a bearish divergence signal on the daily RSI charts. Nonetheless, traders have come into the market as buyers. This could be a trap.

SOFTS

Cocoa cleaned out a few stops while making a new low. Stand aside until a better picture can be seen. Maybe by today’s (Friday) close a reversal will be on the charts and shorts will be too nervous to stay. Coffee is very near a crossroad. Go with a breakout for a short-term trade. A distributed top is the highlight of the sugar contract. A drop back into support in the 750-725 area may be in the mill. Better economic conditions, whether in the US or more generally, should be outstanding for cotton demand. Between 5100-4900 July, cotton should find good demand and therefore better prices ahead. In the OJ arena, my targeted price of 105-110 got stopped short near 101.5. But the game is still afoot. There are many vulnerabilities in this field, from disease to demand. Don’t overlook the potential in the lumber pit. Bad weather, pre-buying because of a bullish outlook got lumber prices ahead of themselves. Things are getting better balanced and therefore getting closer to an entry point for the bulls. The potential is to see lumber price well above previous seasonal highs near 460.

GRAINS

There is nothing really new to add to previous grain comments. The six-dollar level remains support, for now, in the bean complex. In summer corn the 205 level has been tested, as suggested last week, and so far is holding. And if you did as I suggested last week by selling one July wheat futures and buying three of the 440 and 330 call options for each futures short you have, you are sitting with profits in your short futures position and a little underwater in your options.

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