FROSTY FUTURES

JUNE 3, 2005

INDICES

The Dow is in consolidation bounded by support near 10,400 and resistance near 10,600. The outlook for lower earnings is a known quantity so we must look for the unexpected to stimulate the move that will propel stock prices one way or the other. The chart pattern, both daily and weekly, is friendly on all major index charts, but the tech indices are overbought on RSI.

TREASURY BONDS

A bearish engulfing line at new highs with an overbought RSI reading validates my earlier recommendation to lay the groundwork for bearish positions in bond futures and options. If you followed my advice you should have some sort of a short position on the rally today. The expectation now is for a 25% retracement of the last up leg which would take price back to the 117 level.

THE DOLLAR

Overbought on most technical indicators. Strong close today but unable to take out resistance established earlier this week. I expect a correction to take the Dollar back to 8700-8650. Penetration of the 100-day MA is bullish, but it will likely be necessary for the market to backfill to gain momentum to push higher.

METALS

Gold is poised to go higher as expressed on daily and weekly charts. Near term target is 428-430. Silver obtained its tech target today, so we will have to wait and see what kind of pattern develops before I can project the next move. Silver rallied without gold early this week, so it would come as no surprise if silver was static while gold fluxed its way to check out resistance and its own target.

CATTLE

The question is has cattle reached a support base from which they can rally into summer? Odds favor a negative response to the question. A ten-cent drop from spring highs to summer lows is historically a pretty shallow drop. I suggest you expect another 200-400 points lower on live cattle contracts. Feeder contracts reflect a constant positive bias on the part of players. The way things are expressed on charts the worst case scenario displays a possible drop to 6750 this spring and summer. But I repeat my warning, to wit; things always look the best at the top.

ENERGY

A careful look at price charts and RSI readings are called for. Look back at the price/RSI readings on continuation charts back in the end of April and look at what is currently being presented. The April reading clearly showed bearish divergence. The current reading is clearly bullish divergence. In late April the divergence that was presented in March and early April was validated. But now, price is higher than it was in late April, but RSI readings are lower than they were at that time. This indicates to me the possibility of higher price before RSI rolls over. The level to watch is 5763. This still allows for a valid double top formation at the 5828-5816 level on daily and weekly charts. A close below 5100 negates the probability of a rally and projects a test of 4000, give or take a couple bucks.

SOFTS

Coffee and cocoa are in a crab crawl going nowhere for the time being. Sugar still has a valid target of 920 and cotton looks, to me, like it has another 400 points to go on the downside. RSI is low, but price pattern is deadly bearish. I don’t know what it will take to break through resistance at 9600 on OJ, but sooner or later it will. Target remains 105-110 and support is 9000. Lumber can’t seem to get it going. Support is just above 350 with resistance at a double top near 375.

GRAINS

Beans remain in a box with the bottom at 650 and the top at 700. That range should not last much longer. Good weather breaks things down, dry weather projects a rally to 850. Rain across the grain belt took the edge off corn price this week. Basis the July contract support should be strong at 213 for the early part of the growing season. Later on, given timely rains, corn should come down into the low 190’s. Support for July wheat is at 313. Resistance is 338. You may be holding three long July 330 or 340 calls and short one futures contract for each three options. Play the hand.

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.