FROSTY FUTURES
SEPTEMBER 3, 2005
INDICES
The relatively strong close on major market indices was rather surprising. It shows me that many money managers are of the opinion that insurance and re-insurance companies are not going to have to dig deep into their coffers of stocks and bonds to come up with the money to pay claims. Those money managers may be mistaken. If they are mistaken following is a list of areas of support on the Dow, S&P and Composite:
Dow S&P Composite
10,300 1183 2080
10, 175 1153 2039
10,000 1136 1904
9700 1090 1759
LONGBOND
Under ordinary circumstances an injection of funds the size of which is necessary to keep the economy moving would be inflationary. I doubt that is the case for the immediate future. Bonds may find themselves under pressure from liquidation in the same way stock indices might. So bond price may come down, but that should not be interpreted to mean that inflation is near. It is very unlikely that we go from a situation where there is too little money chasing too many goods to a situation where there is too much money chasing too few goods. Granted that potential is great in the areas hit by the flood, but government controls imposed by National Guard and Marines will keep that to a minimum.
DOLLAR INDEX
Now here it gets interesting. How will the rest of the “Monied” world treat America during this crises? Our President has placed us in a precarious position. We have troops spread throughout Eastern Europe and the Middle East. Our National Guard is dispersed. Some of the world’s major ports happen to lie in the Gulf of Mexico while freight is backed up coming south and backed up heading into port. Of course the immediate reaction was a Dollar sell-off. But the question is will that sell-off continue? A realistic target, should such be the case that the sell-off continues, is 8272. A rally should be stopped cold in the area of 8832-8867.
METALS
Spot gold will meet resistance at 448-452. Two successive closes above that level may mean a new leg up to 485-500. A good finish to the week for silver from a test of the 100-week MA may portend more rally. Industrial demand as well as reflection of a weaker currency can be sufficient to rally the white metal to old highs. A clear, clean breakout to the upside in copper indicates the same possibility with a new high possible to 2.00.
CATTLE
Fall usually brings about higher prices as the summer doldrums come to an end. Expect the live cattle market to find decent support in the area of the 50 and 30-day MA, basis Oct with resistance near 8400. Feeders are holding an uptrend line that indicates that the uptrend is valid. While corn and interest rates play an important part of the feeder contract pricing mechanism I see nothing in the immediate future to keep feeder prices from rallying into resistance near 112-114.
ENERGY
The charts indicate a reversal is at hand. The time is right, prices are overextended on a technical basis (which some say doesn’t mean a damn thing) and the crises, for what we know about now, should be fully priced in. At the very least you should expect extreme volatility if not an outright downside correction. However, a gap down opening Monday night and no upside correction during the day trade following would indicate that liquidation is taking over. This ship could capsize, and by that I mean a price spiral down as longs beat a retreat.
SOFTS
The rally in cocoa continues. The pattern is a breakaway gap, a measuring gap and a target of 1600 for this move. Coffee trading pattern was interrupted by a shot across the bow as Friday’s trade was an inside day. The tech target is 110, but the warning was issued so traders best beware. Sugar marched right through its top formation on deferred March, which indicates a powerful move is underway. One should now approach the cotton market from the long side as well. Based on the current pattern of consolidation above support a legitimate price expectation is the area around 5200. OJ has also put in a bottom formation which should lead traders to support pullbacks into Trendline support. The caveat in OJ is that it is a thin market run by locals and a few commercial traders. If they want to maintain the integrity of the trend they will, and if not, they will break you. I am guessing when I say a minimum upside target for lumber is 380. It could be 500.
GRAINS
Basis levels will drop as elevators want farmers to store grain on-farm until the ports are cleared for export-import. This may weaken price for awhile, but that will reverse in a split second if traders decide they can lock in profits for the fall. Don’t expect any big rally in beans but 700 is not out of line as an upside target. A new demand for ethanol could be the spark needed to propel corn price to new highs and wheat benefit as a weak sister.
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.
