In This Issue

May Futures Market Outlook

Corn Trapped in Trading Range at Higher Levels

Economic Reports and Expiration Notices

May 7th, 2008 — Issue #427

May Futures Market Outlook

by the MF Global Research staff

Debt Markets

Expect TYM8 to range between 114-000 and 116-150 throughout May. Look for the coupon curve to restart its steepening trend. Debt futures lack a strong catalyst and are faced with neutralizing opposing forces. The bearish case is supported by poor valuation and increasing supply. Treasuries yields are unattractive compared to other financial assets classes and real yields are low. The expected reduction in tax receipts will cause an increase in monthly auctions. As higher yielding corporate debt floods the pipeline, the rise in treasuries supply may saturate demand. Moreover, the Fed's actions from the monetary stimulus to the liquidity facilities have been successful in stabilizing credit and generating risk taking. Finally, recent economic data, namely the ISM Non-Manufacturing and the April Non-Farms, imply that the macro conditions are not as dismal as originally feared. Underpinning the market, however, are escalating trepidations that the global economy is decelerating, especially in Europe and Japan. Lingering concerns in credit spectrum, recently punctuated by the questions regarding BAC's purchase of CFC, will also act as an agent to lift debt prices. Additionally, sentiments expressed in the Senior Loan Officer Survey suggest that banks are tightening credit in contrast to the corporate sector. Finally, the market has prematurely priced in Fed rate hikes. Fed Fund futures are already pricing in a 25bps increase by February 2009. With the global economy slowing and the domestic recovery process prolonged, the 2/10 yield curve will be biased toward steepening, ranging from 136bps - 162bps.

Equity Markets

Equity prices are expected to work sideways to higher through May. SPM8 should trade between 1385 and 1440. Although the market is overbought, stocks are expected to find support on breaks due the backdrop of improved liquidity conditions. The Fed's move to supply liquidity to the dealer community in March has unfrozen the credit markets and caused buyers to re-enter the stock market. Bullish factors include: 1) Q1 profit results were stronger than expected in non-financial sector, and provide support for continued profit growth in Q2. 2) There is a high degree of sidelined cash, while money market and treasury yields are unattractive. 3) Improved capital market conditions could provide the foundation for a rebirth in M&A activity. Negative factors include: 1) The stock market is overbought after a solid six week rally. 2) The U.S. economy has shown signs of stabilizing, but the global economy has lost momentum given recent weak economic numbers out of Japan and Europe. 3) MSFT's decision to walk away from its YHOO bid and BAC's potential re-pricing of its takeover of CFC argue against a cheap market. 4) New equity issue continues to soak up buying power as financial firms recapitalize. 5) Volatility, as defined by the VIX, is at the lower end of the 2008 trading range. A rally in volatility would likely coincide with lower stock prices.

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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!

Corn Trapped in Trading Range at Higher Levels

by Jim Wyckoff

Click the image to enlarge.

The July corn futures contract at the Chicago Board of Trade has seen choppy and sideways trading action at higher price levels for four weeks. Prices are presently trapped between a well-defined trading range bound by solid technical resistance at the contract high of $6.28 1/4 and by solid technical support at the late-April reaction low of $5.83. For new-crop December corn, prices are also in a four-week-old trading range at higher price levels, bound by strong technical resistance at the contract high of $6.37 3/4 and by strong technical support at the late-April reaction low of $5.93 1/2. The direction in which July and December corn futures prices "break out" of the aforementioned trading ranges is very likely to be the next significant price trend of the market. From a longer-term technical perspective, an examination of the weekly continuation chart for nearby corn futures shows that prices are presently in a pause mode, after hitting a fresh all-time record high of $6.16, basis nearby futures, the week of April 11. This pause is not bearish and does suggest the bulls are just catching their breath before making another assault on higher price levels in the coming weeks. For some serious longer-term chart damage to be inflicted in corn futures, nearby prices would have to drop below strong longer-term technical support and also psychological support at $5.00 a bushel. A look at seasonality price patterns in corn futures reveals that prices tend to rally from the March timeframe into the August timeframe, before turning lower into the November timeframe and then rallying into the end of the year.

Jim has an excellent daily newsletter where he reviews different markets, alerts you for potential trades and much more. Included is his great bi-weekly newsletter with charts and a little longer term outlook. We recommend checking out his website, educational CDROM, and services at Jim Wyckoff

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!