FROSTY FUTURES

JULY 29, 2005

INDICES


Last week I mentioned that if the market could rally 7% (from that days close) that should be enough to stimulate new money to enter the market. From last weeks close a 7% rally would take the Dow Index to 10,732. The S&P from last week’s close would hit 1243 and the Composite would hit 2195. Two of the three indices made the mark, but there was no follow through. Instead it looks like money has come out rather than in. Perhaps we can blame it on the rally in energy prices to account for the drop in confidence. Most pundits will, at least, incorporate that into the postmortem. That being said, if crude falls next week, the market will rally to new highs. If crude continues to rally cash coming out of the market will reflect a fear of inflation/stagflation and commodities will come back into favor.

LONG BOND

A close below 11500 is a serious warning to interest rate monitors. If that level should hold, then a sign the market is in a trading range will have been noted.

METALS

Three days up in gold and silver proves nothing. Continue to monitor the Dollar chart. Copper has hit some resistance so perhaps selling calls might be profitable.

DOLLAR INDEX

A weak close this week indicates to me to expect lower Dollar price next week. If that should be the case, then look for a continuation of the rally in the metals. AND, that would be a sign that we can expect stagflation rather than classic inflation. The Republicans can kiss their stranglehold on power goodbye if this is the case and even a goodlooking, smart fellow like my U.S. Senator Bill Frist won’t be enough to buck the reversal in fortune. If the Dem’s can’t make hay with this one they need to fold their tents and go home.

CATTLE

Meat markets took bad news well this week so a short covering rally ensued. It’s not too early to discount the Labor Day holiday buying and end of month trading issues. I suggest you don’t get all bulled up. Wait for the splash and ripples to settle and then sell into the rally.

ENERGY

I have no answers. The question is, for the time being, is that a head and shoulders top or a 5600-6200 trading range? RSI indicator keep telling me to expect a drop. Yeah, right, right.

SOFTS

I hope more of you who read this but don’t trade with me got long cocoa than did those who do trade with me. Looks like a bottom formation has developed so make your approach from the long side on setbacks. If the market is any good we should not see any closes below 1442 for quite awhile. Coffee also is set for a rally with support just under a dollar, 9730 at the lowest. A bearish close in sugar indicates a sell off next week. Support lays at 950. Manufacturing numbers remain strong in many world markets and so should demand for cotton. A strong close this week portends strength next week. Perhaps not strong enough to carry prices back up to the 5600-5800 level, so beware of that. The weak close in OJ hints at a drop to test new support. And the limit down move in Lumber is the capitulation I have been waiting for. Option premiums should shrink dramatically on this liquidation. Use that as opportunity to collect some call options. But, note the Nov contract dropped and came back half the drop.

GRAINS

Some pundits/analysts call for a resumption of a rally based on hot weather to come. I suggest, if you are quick enough, to follow that advise. However, for the not so fleet afoot, bide your time and either sell way out of the money calls or await a reversal and sell the break.

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.