In This Issue

Stock Index Rollover Notice

Forecast: March 2006

Reports and Expiration Notices

March 8th, 2006 — Issue #317

Stock Index Rollover Notice

For those of you trading the "Big" S&P 500 futures, E-Mini futures, or any Stock Index contract, it is extremely important to remember that tomorrow - Thursday, March 9th - is rollover day. It is recommended that all new positions be placed in the June 2006 contract as of Thursday's trade date. GLOBEX will not roll over until Thursday morning at 8:30 A.M. Central Time, despite the fact that the trade date changes today - Wednesday afternoon.

Further, please be aware that the executing brokers in the March contract of the "Big" S&P 500 and NASDAQ 100 will not be "held" on ANY order, and that they will not take Cancel and Replace orders at all beginning Friday March10th. Also, please be aware of liquidity issues in the 2nd step E-Mini S&P and E-Mini NASDAQ. Expect sharply decreased liquidity in the March contract beginning Thursday morning. Carefully consider whether you wish to place Market or Stop orders after that time.

Traders with electronic trading software should make sure that defaults reflect the proper contract as of Thursday morning.

If you have any questions, please contact us.

Forecast: March 2006

by Erik Gustafsson, TradeTheNews

March, In to the New Era

So far, so good. With the DJIA up 3% and Nasdaq up 4% in January and February, the US stock market is off to its best start since 2000. The successful re-launch of the 30-year Treasury has fueled the bond market, which seems content to ignore the continued yield curve inversion. Commodities also continue to stay strong, with metals all still near multi-year highs and crude only about 15% off the highs set last summer. With markets showing this nearly uniform strength, corporate and economic events during the month of March could add to this good start, or start to chip away at it.

The earnings calendar is light for March, with a few notable exceptions. Most of the nation's largest investment banks will release earnings during the month, including Goldman Sachs (GS, 3/14), Lehman Brothers (LEH), Bear Stearns (BSC), and Morgan Stanley (MS). The health of Wall Street is usually an indicator for the strength of the economy, so these names are worth watching.

Earning pre-announcements may be the most telling corporate news this month. Many key semiconductor stocks will set out their mid-quarter updates in the next few weeks. Texas Instruments (TXN, 3/6), Altera (ALTR) and Xilinx (XLNX) could each influence the sector should their mid-quarter numbers shift. (Note that Intel has discontinued the practice of giving mid-quarter updates, and so will not hold its standard update in March).

Some drug names may be in the news this month, as well. On March 7th an FDA panel will meet on Tysabri, the controversial MS drug from Biogen Idec (BIIB) and Elan (ELN). A positive meeting could keep these two companies on the comeback trail. Merck's latest Vioxx trial also begins this month, pitting the lawyer who won the first Vioxx case in Texas, against Merck in pharma-friendly New Jersey. The company successfully defended itself it in the last Vioxx suit in its home state, so, should the company lose this case, it might force Merck to reconsider its stance on a settlement.

Energy prices continue to be a concern for markets, though crude oil prices have temporarily stabilized around $60/barrel. OPEC's president recently reaffirmed his opinion that $60 is a fair price, and that the elevated price is still due to a lack of refinery capacity. OPEC meets in Vienna on March 8th to discuss production levels. The crude market will be very sensitive to any new calls for a production cut as the OPEC ministers put out their commentaries ahead of the meeting (Venezuela has already begun advocating for a cut of up to one million bpd in production). Events in Iran and Nigeria will also continue to play into the energy market this month. New attacks in the Niger delta (threatened even as the militants released most of their hostages) or further rumblings from Iran about cutting off its oil to spite the West could send oil prices soaring again.

Also overseas, central banks are on the move to match the US Federal Reserve. The ECB bumped up interest rates 25 basis points for the second time in a row March 2nd, and the Bank of Canada is expected to raise its rates another quarter point March 7th. In Japan, chief central banker Toshihiko Fukai is believed to be preparing to bring an end to the near zero percent short-term interest rate that has stoked his country's economic recovery. After four years of growth in the world's second largest economy, the Bank of Japan must now concern itself with warding off inflation. As a first step, within the next few weeks, Fukai is expected to discontinue the practice known as "quantitative easing," which floods banks with extra cash to promote freer lending practices. An indelicate shift in policy could cause the Japanese economy to swoon again, to the detriment of the global economy.

With Greenspan off collecting speaking honorariums, the Bernanke Era has officially begun at the Fed. Bernanke acquitted himself well in his first Congressional testimony last month, and so far the markets seem to have accepted him. The next "test" of Bernanke will come in the crafting of this month's FOMC statement. Speeches from Fed members will be closely watched this month, leading up to the FOMC interest rate decision at the end of the month. Analysts will pore over statements from outgoing Vice Chairman Roger Ferguson (3/3), St. Louis Fed President Poole (3/8), and San Francisco Reserve President Janet Yellen (3/13) for any hints about a shift in the Fed's stance.

March culminates in the FOMC meeting on the 28th, when the committee is expected to raise interest rates yet another quarter point. As we approach the nebulous neutral range, any adjustments to the FOMC statement will likely cause a big reaction in markets. If the Bernanke Fed gives no indication that the tightening will pause, markets could take it very hard.

Thus, some earnings announcement—and pre-announcements—as well as some long awaited drug news could provide the impetus for this month's market moves. However, the key to this month again will be the FOMC's rate statement. Will Bernanke seal the Greenspan era with one more rate hike? Or is there more to come?

There is a risk of financial loss in futures and options trading. Futures trading is neither easy nor an easy way to make money. It takes hard work to have success. Please use sound money management when trading futures. Past performance is not necessarily indicative of future results. Nothing in this newsletter is intended to be a trading recommendation for you to buy or sell futures or options. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed. Readers are solely responsible for how they use the information in this newsletter.

Economic Reports and Expiration Notices

Source: Moore Research Center, Inc.

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!