Play the Futures Another Day

On the last trading day of 2002, most futures markets will close early ahead of New Year's Eve celebrations. Only stock index futures and the major contracts at the New York Board of Trade -- contracts that have had shortened trading hours since Sept. 11, 2001 -- will keep their normal schedules.

The light volume that accompanies shortened trading schedules increases the risk on most trades. So lightening your contract load or watching from the sidelines may be the preferred approach to Tuesday's markets.

Market Psyche

The setting of new contract closing highs in the March five-year note (FVH3:CBOT) and 10-year note (TYH3:CBOT) contracts demonstrates participants' continued extreme risk-aversion.

The five- and 10-year notes could see additional buying in the wake of their recent momentum pulses Tuesday, especially in light of February gold's (GCG3:COMEX) failure to close above the round, psychological $350 figure.

Gold's weekly Commitment of Traders report also showed a net speculative long position in excess of 100,000 contracts, highlighting the overbought condition in the metal and increasing the allure of last-day-of-the-year, safe-haven trades in the five- and 10-year notes.

Fifteen-Minute Risk

One way to limit your risk in lighter-volume, higher-risk sessions is to shorten your time frame. The 15-minute March S&P 500s (SPH3:CME) chart shows a tight Fibonacci cluster just above Monday's close. All three major stock index futures contracts hit 10-day lows Monday, revealing short-term weakness in the group and giving the S&Ps a distinct downside tilt and the potential to trade much lower out of a daily head-and-shoulders top.

The following chart pinpoints 882.50 and 890.00 as potential areas to identify intraday pattern setups for defined risk short-side trades.

Saying No to GM

March corn (CH3:CBOT) has tanked over the past two sessions and ended Monday at a six-month closing low. Corn retreated from resistance at key Fibonacci levels, in a move that suggests this market will continue hitting new lows.

Two fundamental factors playing an ongoing role in the grain's demise are seriously lower weekly export figures and fluctuating temperatures that create prime conditions for growing molds such as aflatoxin.

The U.S. Department of Agriculture reported a 30% decline in export shipments last week, underscoring reports that 800,000 bushels of U.S. grown corn landed in Japan contaminated with the genetically modified StarLink hybrid. Two years ago, demand from Asia nosedived after StarLink was detected in shipments.

Finally, February live cattle (LCG3:CME) traded lower Monday after scoring a contract high on Friday. Momentum has stalled in this market after a three-week lull. The quick retreat and failed breakout that left a tail Monday indicates selling of the high.

Marc Dupee is an independent trader and co-author of the book The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to Marc Dupee.

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