FROSTY FUTURES

MAY 27, 2005

INDICES

The Dow is in consolidation with support between 10, 465-10,425. A breakout to the upside should be able to reach 10, 700. A positive resolution should find the S&P Index up near 1210 next week. A failure from current levels will allow traders to test strength near 1190. NDX is nearing an overbought condition, although there may not be much of a break should positive conditions prevail. As you can see by looking back, this market may not climb much when it is overbought on a relative strength basis, it doesn’t fall much either.

LONG BOND

Now the future’s contract is beginning to show signs of tiring. A double top is in place on daily charts, along with bearish divergence on RSI readings. It would be prudent to, at least, buy some puts or sell some calls, keeping some powder dry to use to sell futures should the market shoot upwards as it cleans out stops above contract highs. Downside potential is at least a 25% drop from this month’s high.

DOLLAR INDEX

Some hesitation is seen on the part of Dollar bulls as the long weekend prompted outright liquidation of some longs. Support next week should be tested along a horizontal axis at 8630. If that support base is broken on a close then we might expect the buck to drop back into longer term support near 8500.

METALS

The Dollar comment is given more credence by evidence offered in the metals pits. For example, silver has clearly cleared resistance and appears to be on the way to another up leg, while gold closed out the week near the top end of resistance. In both instances RSI values show plenty of room for more upside. So this shows a bias on the part of metal traders to expect a drop in the buck and maybe for more than just a drop in the bucket.

CATTLE

It was a weak attempt at a rally at the close of trade this week in the summer live cattle contracts. The positive note was a rationalization that retailers would be ordering to restock after the Memorial Day weekend. But after that it should continue its down leg. A positive note is the news the Japanese are going to allow importation of US beef once again. But from the way the market reacted to the news, it may be interpreted to “sell the rumor, sell the fact.” Feeder contracts are loosing some of their shine also.

ENERGY

Crude oil is poised to rally further. There might be enough positive momentum to propel price back up to the 52-54 range. But I think we will look back and see what is being defined as a double top near the 58 level as “the top.” You should not be caught outright short this market, but option premiums are very rich and the opportunity to squeeze some of that premium can be done if you are careful. Call for help if you are interested.

SOFTS

Don’t get caught short cocoa down here. It’s price is low enough and RSI readings are low enough to sponsor a significant rally. RSI readings are as low now as they were when cocoa price was $100 lower than they are now. See weekly readings for May, June and July of ’04. Coffee saw some profit taking today, but signals remain bullish. RSI readings remain above 50 and price remains above the 9, 50 and 100 day MA’s. Sugar is pointing towards 920 basis the July contract. Support, if tested, comes into play near 857. Cotton is trying to present a bullish picture as it consolidates above support marked at 50-49 basis July. But the RSI readings are suspect and the pattern indicates a test of 47-46 is forthcoming. Bulls beware of trap. The OJ pattern is stymieing, but what’s new about that? As things stand now price is bumping against resistance near 96 with support down near 90. If things resolve themselves to the upside the first target is the old high near 101. My projection remains that this level will be taken out and the long term target will be reached up near 105-110. A good close this week on lumber charts indicates the bull run is probably ON. First stop should be 380. We’ll see what happens from there.

GRAINS

Beans have reached up and held to a new range. That should be defined now as a path between 650-700. Corn projects a rally up to the old high at 231 with support currently at 219. If you followed my suggestion on wheat your 330 and 340 calls are supporting your one short futures for each three long call positions. We’re in for the ride, so see what happens next.


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.