FROSTY FUTURES

WEDNESDAY MARCH 8, 2006

INDICES

Stock indices continue to trade range bound. I don’t expect that to change anytime soon. There are no forthcoming macro-economic events that will change the current environment. 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.

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

You have to be careful now as the Dollar Index switches from March to June contract. The spread is wide and resistance on weekly charts is pegged to March. That leaves June too much room to rally before getting aggressive on the short side. It may not happen that way, but I prefer prudence to aggression, reflecting my own bias to the opiate rather than testosterone. If we can get a safe bite into the underbelly we will, but I don’t want to get bit on the neck being too quick to act.

CATTLE

The bull is dead. The trend will be down for the foreseeable future. Sell rallies. How long you ask? Cattle cycles last 2-3 years.

ENERGY

Crude has support around 5600. If that breaks, and it is likely to break in the near future absent some catastrophe, the area to expect it to reach is around 50-45-40. But you can’t, or shouldn’t, short this market unless you have your bet hedged, covered with long calls, or other limited plays in the options pit.

SOFTS

On the Cocoa daily the nearby continuation chart presents a massive head and shoulders top formation with the neckline at 1425. This may be too broad to indicate a steep drop in price. Rather it may indicate a shallow drop before support comes into play, maybe to 1300. Coffee has presented a bullish chart formation on the daily’s and is going through the retesting phase of a bull trend. Sugar is fading off under the weight of profit taking and hedging. How long this will last I don’t know. Be patient, as I have warned you before, but as we identify bullish signals and patterns, believe them and go with them, particularly if the energy market shows signs of strength. Cotton is coming into good support as it approaches 5375-5305. I know, 70-cents is a fairly broad band to cope with….there is nothing I can do about that. OJ will do something after the crop report this Friday. You can’t discount the probability of a 20-cent range off these reports.

GRAINS

No rocket science here. Big bean crop, expect downtrend to continue into spring, ditto corn. Wheat is in a bull market but has fulfilled the targets I gave you in the last FROSTY FUTURES commentary, that is, 375 on Chicago and 425 in KC. Recent consolidation should tell you to pull in your horns for the time being, particularly since exports have slowed.


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.