FROSTY FUTURES

JANUARY 27, 2006

INDICES

All domestic stock indices will be coming under pressure, albeit gradually, in the near and distant future. Stocks of domestic companies that rely on domestic consumers for earnings will be coming under pressure as the consumer loses purchasing power. Stocks of companies that can count on earnings from exports and consumer demand from developing/pan-growth multi-nationals will do well. This will befuddle the tea-leaf readers who rely primarily on these indices for their soothsaying. As you listen to reports from politicians, politically appointed economists, corporate heads and their ilk, keep in mind a warning issued in passing from George Soros, only this morning, to wit; “…To listen to them everything is hunky-dory. They are dancing on the Titanic.” I don’t know if it will be that bad, but I do know that the US has peaked as far as culture, economic viability and consumer safety is concerned. Have you listened to “spitting and spewing” Kramer lately? He is now touting stocks of corporations that will benefit from the increasing number of financial failures in the middle and working lower classes.

METALS

Silver is now on a tear while gold consolidates. Copper remains strong. So far stochastic and RSI readings have been failures as far as being good indicators of a pullback or reversal. Overbought readings on both tools have, so far, been meaningless. That could change at any moment so be aware of that. By that I mean either trade very loose or very tight. Know thyself.

INTEREST RATES

CAPITALISM is not for the weak. Don’t expect the Fed to flood the market with easy money. There will be lots of failures and interest rates should stay within a fairly narrow range and, historically speaking, relatively low. Increasing rates will only serve to exacerbate an already bad situation. The temptation will be there to raise rates as capital flows out of the US and into developing, more profitable, areas of cheap labor. But the offsetting phenomenon will be the fact that big business will not go along with higher cost of capital that decreases profits provided by cheap labor. So there will be a two-sided push to keep rates within reason. On the one side by politicians in order to finance greater domestic needs and on the other side by business to keep costs low and profits high.

DOLLAR INDEX

The potential low on the Dollar Index is, get this, 6800. Optimists are looking at a monthly chart and see a potential head and shoulders bottom developing. Pessimists are seeing an, in-trend, double-top. Things always look the worst at the bottom and the best at the top. It’s your money, you be your own judge. Obviously, I am more pessimistic but I hope I am wrong. That is not ambivalence, it’s closer to wishful thinking.

ENERGY

Add sugar and corn to the energy equation. Sugar is the more direct route to ethanol, see Brazil for information on sugar conversion. Sugar has made quite a run and is overbought by most standards. Find a place to get long and do not overtrade. This can be an extremely volatile market. Use that potential volatility to your advantage, be patient and wait to enter until a correction of several cents comes your way. Sell puts and calls if you can watch the market carefully, the option premiums are extremely rich.

CATTLE

Prices of fed and feeder cattle have been very high for quite awhile now. Nothing lasts forever. “On the hoof” buyers should be protected with puts or outright short positions. Processors should only buy hand to mouth. Speculators may place trailing sell stops under recent consolidation on weekly charts to catch the break on the way down.

SOFTS

Cocoa should find good support above or around the 1425 level. Upside potential remains old highs from the just previous move. Sugar, as stated above, is responding to the energy market. To expect, eventually, 30-cent sugar is not beyond reason. OJ will remain in its current trading band with a bias to move higher over time. Corrections to 105.00 should find good support. Demand for coffee will remain strong, so keep check on the supply side. No reason not to expect coffee to reach old highs from early last year. Lumber supplies continue to meet great demand. Next breakout to the upside should carry the nearby contract into the 420 area.

GRAINS

Beans are caught in a 75-cent range. Something will happen to break that up this spring. Corn has a new base at 2.00. The upside is wide open depending on weather, crude oil, export demand. Any opportunity to get long corn under 2.00 should be taken advantage of. Wheat is trying to break-out to the upside as I write this. The Chicago soft red has a potential target of 3.75. KC hard red to 4.25.

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.