FROSTY FUTURES


FRIDAY AUGUST 26, 2005


INDICES

The Dow closing below the 100-day MA may not be as bearish as it could be because of the fact that both the S&P and Composite indices have a way to go before their 100-day MA’s are even tested. So be it the Dow may come down some more, it remains to be seen if the other two major indices will hold. For now consider the market in a corrective mode and be selective what you buy in the way of stocks, and approach the indices from the short side on rallies.

LONGBOND

Higher energy prices at home and at the pump, higher taxes in nearly every state and county, higher short-term interest rates all suck disposable income meaning there is less money chasing more goods. Not a scenario for inflation. The trend on the long bond, pricewise, is up.

DOLLAR INDEX

As above stated, if there is less money in the hands of the populace the strength of the currency is weakened. America is going through the throes of a macroeconomic phenomenon as wages come down and our standard of living gradually hit’s the skids. It’s hard to determine how wide or narrow the band of price differentiation will be but the trend, in my opinion, of the Dollar Index is down.

METALS

My thesis, as stated above, determines that with a weaker currency there will be a substitute for value and that is usually gold. So far this year we have seen gold in a band range of about $40.00 from low to high. I can’t tell how much longer that band will continue, but eventually the patient trader who keeps his/her bias to the long side will be rewarded with a constant store of value. My strategy, for myself and my customers who allow me to manage the market, is using futures and options to hold our long positions. We are buying futures and buying and selling options as the market ebbs and flows. If you are interested in letting me handle things for you let me know. Silver is walking a line between the demand for copper and the demand for a currency hedge. Being an industrial metal more than a store of value the white metal moves sometimes with and sometimes against common sense. And speaking of common sense, copper traders should realize that a wave of liquidation can hit the copper pit at any time and wash a full dollar out of price charts in a very short period of time.

CATTLE

There is a gap on the live cattle daily charts from last June that might get filled on this rally. That is on continuation charts. I may be in the minority in my belief that there is more downside to come in the beef pits, but that is what I am holding to. Having said that, I will tell you that analysts that know a hell of lot more than I about cattle are calling for a blow off top both in live cattle and feeders. There you have it. Either take your pick or stay out.

ENERGY

You may want to go back to a previous column where I mentioned to you that the tech target on crude was 6750. It got up to 6710 and dropped then made a comeback to make a new high at 6800, a retest today at 6795 and then a sell off going into the close. Natural gas hit 11.00 in some deferred contracts. This ought to be a key area for a correction in all energy pits.

SOFTS

Cocoa is in rally mode. A reasonable target on the spot contract (now Dec, I believe) 1455-1470. And coffee isn’t far behind as far as rally mode is concerned. Stochastic is turning up on new low prices indicating an oversold condition. Sugar, however, appears to have put in a top. Sell the Oct contract between 985-990 or buy puts on the March contract. Low cotton price and declining dollar should imply higher cotton price is around the corner. There is a lot of spread trading in cotton and sometimes that confuses the amateur trader. Fair warning. The OJ charts are nearing a bottom but the fact that Kittrina missed the bulk of the state, so far, may push trade a little lower. At some point the odds this year favor another hurricane hitting the southern part of the state rallying prices significantly. Lumber is nearing the low end of its trading range on a weekly and even monthly basis. It hasn’t been this low since fall of 2003.

GRAIN

I don’t know how much lower beans and corn can go, so I wouldn’t push it from here. Wheat is in a trading range now from 320-350 basis Dec. If you haven’t already dumped your wheat call spread don’t do it here because the chance of a rally back into resistance is in your favor.


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.