In This Issue

Stock Index Rollover Notice

Trade the News June Forecast

Reports and Expiration Notices

June 7th, 2006 — Issue #330

Stock Index Rollover Notice

On Thursday, June 8th the September contract (SPU6) trades on the Top Step of the trading pit at the Chicago Mercantile Exchange (CME).

This is a quarterly ritual that is implemented on the second Thursday of the contract month, in advance of the quarterly expiration of the contract which occurs on the third Friday of the contract month. The trading "pit" is an octagon shape about 50 feet across, the first three steps ascend, the front month contracts are traded on the "Top" step, all other contracts are traded in the interior of the pit on the descending steps of which there are five (the center is deeper than the surrounding floor hence the term "Pit").

Institutions with global financial reach, DeutschBank, Solomon, JP Morgan, First Boston, Credit Suisse and others, man the telephones at the desks around the pit. These insitutional players are taking orders from around the globe and in turn, communicate their orders using a variety of hand signals to the traders on the "Top Step" for a fair execution. On Wednesday and Thursday of this week you can expect choppy and uneven trade as traders reposition into the September contracts in advance of quarterly expiration Friday June, 16th.

Please begin trading the September Mini S&P contracts ES U6 on Thursday June 8th. The same is true for the Mini Nasdaq, Mini Russell and Mini Dow over at the Chicago Board of Trade. Begin trading September on June 8th!

As Volume is reduced in the June contract you may find that the market becomes even choppier to trade that you are used too. Just check the volume on your market depth!

The CME created the GLOBEX division for electronically traded contracts. The Mini S&P contract has been the most successful of the electronc contracts as measured by an average daily volume of around 900,000 contracts.

Plan your Trade and Trade your Plan!

Trade the News June Forecast

by Erik Gustafsson, TradeTheNews

May was a tough month for US equity markets: after coming within ninety points of its all time high (11,750.28, set January 2000) the DJIA dropped about 2%, the Nasdaq was down about 4%, and the Russell 3000 fell 5%. Overseas, equity markets were down even more dramatically in May as inflation concerns and confusion over the US Federal Reserve's intentions perturbed investors. In the face of all this uncertainty, the VIX (volatility) index hit its highest level in two years. Events that could cause more volatility this month include upcoming earnings, a major drug conference, and several notable economic events. Additionally, geopolitical concerns could further influence commodities prices, keeping pressure on central banks as they plan interest rate policy.

Individual equity news should be rather sparse this month as we move into the summer slowdown; exceptions may include Disney and the investment banking sector. After several delays, in early June (6/9) Pixar's "Cars" premiers, its seventh major motion picture release. If "Cars" maintains Pixar's perfect track record of animated hits, Disney's shareholders may be reassured that the acquisition of Pixar was worth the multi-billion dollar price tag, but if "Cars" fails to get any traction in a summer inundated with animated features, Disney's engine could sputter. Mid-month, several of the marquee names in investment banking will report earnings, including Lehman Brothers, Bear Stearns, Goldman Sachs, and Morgan Stanley. As usual, these earnings reports can be seen as a proxy for the well-being of Wall Street.

June is always a big month for drug developers: the American Society of Clinical Oncology (ASCO) conference June 2 thru 6 is an important forum for data on promising pipeline drugs. ASCO may provide a new spark for the recently listless biotech sector, as many companies use the conference as a platform to trumpet new cancer treatments or indications. Another significant pharmaceutical event in June will be the patent expiration of Pfizer's blockbuster depression treatment Zoloft, allowing for the entry of generic versions. As Pfizer's third biggest selling drug, Zoloft accounted for about $780M in sales in the first quarter (about 6% of total revenue). Forest Labs (FRX) could feel an even bigger pinch as sales of its Lexapro, another anti-depressant, may dip as cost conscious HMOs steer patients toward the cheaper generic Zoloft. As it's top selling drug, Lexapro accounts for about 60% of Forrest's sales.

Commodity prices continue to raise inflation concerns, and events this month may add fuel to the fire. The Atlantic hurricane season officially begins on June 1st, and another active season is predicted. The official government forecast calls for an above average 16 named storms (avg. 11), 10 hurricanes (avg. 6), and 6 major hurricanes (avg. 2). While fewer than last year's record 28 named storms, the predicted level of activity could still raise grave concerns. With Katrina still fresh in the minds of many Americans, and a considerable slice of Gulf oil production still shut since last year's storms, oil prices may stay elevated merely on speculation. Should a hurricane head into the heart of the Gulf, it could send energy prices soaring, as traders fear the worst. Crude prices may also get some play from OPEC's next formal meeting, to be held on June 1st in Caracas. OPEC ministers aren't expected to take any action at this meeting, but the usual firebrands may try to stir up the market with some tough talk. Conversely, energy prices could ease should the Gulf evade serious storm damage or if some movement is seen in the stalemate with Iran over its nuclear program.

Metals have gotten a lot of attention lately as well, as rising demand from Asia push up prices and create inflation concerns. Base metal prices could see further pressure this month as the United Steel Workers may go on strike at facilities run by Alcoa (AA) and Inco (N) after their contracts expire on May 31st (Inco recently said that it has reached a tentative labor agreement, but it still needs to pass a union vote).

As we near the end of the US interest rate tightening cycle, individual economic releases may have a greater impact on markets. As interest rates rise, home building and sales numbers have tailed off lately, and further confirmation of air coming out of regional real estate bubbles could be forthcoming this month. In May, Housing Starts (6/20) dropped to one-year lows, and Building Permits (6/20) fell to two year lows. New Home Sales (6/26) were the one bright spot in the housing data last month, as it rebounded to a nearly 1.2M pace. Pending Home Sales (6/1) may also be worth noting. Among inflation indicators, price related data has been closely watched lately. The Producer Price Index (6/13) popped up to +0.9% last month, and the prices paid component of the Chicago Purchasing Managers index (5/31) jumped six points to 77.2 last month. ISM Manufacturing Prices Paid (6/1) has also been rebounding the last two months, after moderating earlier this year.

All of this data will influence central bankers around the globe, as they continue to stress that data will drive their decision making processes. The European Central Bank may bump up interest rates at its next monthly meeting (6/8). During its April press conference the EBC's Trichet implied that rates would be raised for the third time in less than a year at the June meeting, and recent comments from Trichet's cohorts have indicated rising concerns about inflationary pressures and that monetary policy is still accommodative in the Euro zone.

A day after the ECB rate decision, the Finance Ministers of the G-8 will convene a meeting in St. Petersburg, Russia (6/9-6/10). While usually more symbolic than substantive, this session may deserve closer scrutiny in the current unsettled market environment.

Capping the month of June, the Federal Open Market Committee (FOMC) will announce its rate decision on the 29th. Ahead of the meeting, the minutes of the last FOMC meeting will be issued on May 31st and could deliver some clarification of the Fed's current stance after a recent blunder by the Fed's Bernanke. The Fed chief went through some growing pains last month after indicating that the Fed would pause, then later back-tracked through a back door channel. Bernanke's belated apology for the "Bartiromo Incident" shook confidence in the rookie Fed Chairman, adding doubts about his management abilities. With the added uncertainty about whether Bernanke is more dovish or hawkish, Fed fund futures are currently predicting about a 60% of chance of another quarter point increase at the month-end FOMC meeting. Another revision to the FOMC statement is also likely, more fodder for volatility.

Thus, as June begins a number of equity, commodity, and economic events could send the markets spinning. As Bernanke plays Hamlet, searching for his voice and a clear agenda, markets will watch the indicators that cause him to asks himself, "to pause or not to pause?"

Disclaimer:

Trading commodity futures and options involves substantial risk of loss. The recommendations 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 futures 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!

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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!