FROSTY FUTURES

MAY 21, 2005


INDICES

I mentioned last week that a close above Dow 10,370 would remove much of the risk of further decline, and the market accelerated to the upside nicely once that level was overcome. Now the Dow is at next level of resistance between 10,450 and 10,550. The next upside target is 10,650-10,750. Support should hold near the 10,350 level, if a correction is imposed. A caveat is thrown in, in the form of the chart of the S&P. A ceiling at 1192 seems in place and significant new cash will have to come into the market for that top to be moved. On the plus side, there have been three successive closes above the 100-day MA and there is more room on the upside as measured by RSI. This may allow enough confidence on the part of traders to use the 9 or 10-day MA’s as buying tickets. NDX went through its tech target like a hot knife in soft butter. It’s overbought by 20 or so points. So watch what happens if/when this market retraces to the 1510-1508 level.

LONGBOND

The upside target remains in focus around 11716 or higher level. RSI readings are well into overbought territory so a retest of 11506 shouldn’t surprise any of us. What will be a surprise to me would be a failure at that level.

THE DOLLAR

The next upside target for the Dollar Index is 8731. The bearish engulfing line that took place on daily charts on May 18th, is to be taken as a warning shot across the bow. In focus now, in a longer time frame, is a higher target near 8900. So when trading this market one profile we can project is a correction from the 8725-8750 level back to support just above 8600 and then an attempt to fulfill the higher projection.

METALS

The breakdown in gold’s price leads me to expect a test of 414-413, basis June’s contract. This allows for a further rally in the Dollar, as mentioned above, then a reaction from that low. For gold bugs the menace comes in (at least for weak handed position players) with a further drop to 405-400. For strong hands this will more than likely be an opportunity to add to longs. Silver might be expected to break from gold’s influence, to a degree. This chart reads a little differently. For example, if we continue to see a weakening in the economic reports the white metal is vulnerable to a fall to 652-650. However, if the economy should strengthen, then all bets to the downside are off and a rally up to resistance near 720-740 is in the offing.

CATTLE

Cattle pro’s didn’t test fate and go after stops above resistance 8750-June and 8700-Aug. At least not yet. That fear on the first sign of seasonal weakness lends weight to the bear argument. Take nothing in these thin markets for granted, but chances are, the highs are in for the summer. Feeder contracts have stayed up in the stratosphere and that tells me cattle feeders are looking for new highs down the pike of time. Dan Vaught gave me a little insight on cycles in cattle which helps me understand the feeder market. I just don’t buy into it. Many of us beef-eater’s just won’t pay $15-20/lb. for a steak like we would when steak prices were $4-6/lb. And if cattle feeders think we will, they court disaster. Maybe they expect supplies to continue to shrink and that will support high price. OK, but that’s a dangerous game to play. The oldest accurate adage in futures trading: “Things always look best at the top.”

ENERGY

June crude price came very close to hitting its tech target this week at 4600 with a low of 4620. Is it over? Traders of the July contract don’t seem willing to push very hard showing a premium nearly two-dollars above the expiring June. So what do we expect. We could expect a rally after reaching the tech target, retesting resistance near 5100 basis the continuation chart, now reflecting the July contract. However, a July contract close below 4860 might indicate a retest of 4700. These transitions from month to month can getcha’ so be patient and let things develop.

SOFTS

Cocoa traders came into the market last Monday and snatched up available offers and bid the market up $41.00 from low to high. Now it remains to be seen if that support established last week will hold. Resistance is stiff just below 1500. Coffee edges lower from one small bearish flag to another. Range bound for now from 115 up to 121. A close above 870 July sugar could stimulate a rally back into the 920 area. It will take a charge of money back into the commodity arena for this to happen. So watch “the Market” and see what kind of injections take place. Some support exists for cotton near 4900 but the bulk of support is now at 4700. Resistance is up around 5200. The locals in the OJ pit didn’t do what I expected them to. They didn’t go after stops below 9000 before taking price higher. That is a real surprise to me. Oh well, forewarned is forearmed, right? Basis the July OJ contract 9770 may be a key indicator to the upside. A test of that level should be expected. Closing above should stimulate the shorts to cover and longs to add to their positions. A failure from there may indicate a retest of 9000. Lumber couldn’t make much headway upstream. Between WalMart’s bad numbers and Greenspans’ warning of real estate bubbles around the country traders pulled in their horns and let things slide. See what happens when July contract tests 345.

GRAINS

Beans are locked and loaded in a 50-cent trading range from 6.00-6.50 basis July. Check out some spread charts and see if you like any of the action between July and Nov while you wait to see what the future holds. Corn is in a resistance area. Over the weekend should allow time sufficient to tell if corn will gap higher or be set up for a short-sale with a target down near 200-195. Wheat is in a pennant formation. The sooner it breaks out, one way or the other, the larger the move that implies. The parameters are 318-302.

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.