In This Issue

8 Steps to Successful Futures Day Trading

December Futures Forecast

Economic Calendar

December 2nd, 2009 - Issue #509

8 Steps to Successful Futures Day Trading

by Ilan Levy-Mayer, MBA. Vice President, Cannon Trading

My name is Ilan Levy-Mayer and I am the Vice President and Senior Broker at Cannon Trading. I came up with the following personal observations after serving online traders worldwide for more than 11 years.

The following steps are guides to progress, and are not necessarily in sequential order. Some of them are always required, but each trader is different and will relate to these stages in their own ways.

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December Futures Forecast

by Trade The News

Introduction

Despite the sovereign debt scare out of Dubai and multiplying predictions that the party may be over, most asset classes performed well again in November. Equity markets have held their ground in the last month, after gaining ground in the typically difficult months of September and October, while the fixed income market continues to easily absorb record amounts of government debt. Commodities have held up well, with gold racing out to record highs (though still far from its inflation adjusted record high). And even though unemployment figures continue to creep higher around the world, the UK is now the only G20 country that officially remains in recession. With plenty of economic and political events scheduled for December, the added pressure of year end portfolio maneuvering will surely test the resilience of markets.

Commodities Hot

The multi-month commodities rally has been attributed to a range of factors. Returning risk appetite and the burgeoning global economic recovery have kept crude oil above $75, despite few signs of demand growth. Gold has continued its run to record highs, topping the $1,200 mark on uncertainty, the weakening dollar and its status as an asset of last resort. Gold bugs continue to talk about upside as the safest of the safety plays and as a future inflation hedge, but the gold bears reply that gold plays are now so ubiquitous that it is clear the market is saturated.

Oil also has its boosters, with expectations that political events if not growing demand will keep energy prices elevated. The 12 members of the Organization of Petroleum Exporting Countries (OPEC), who produce 40% of the world's crude oil, will convene their next meeting in Luanda, Angola on December 22. The cartel is expected to hold production quotas steady again, but one OPEC member in particular may be at the center of attention this month.

Time may be running out for Iran in its efforts to play members of the UN Security Council off against each other and avoid new sanctions. The recent revelation that Iran has a second secret nuclear facility seemed to galvanize the major powers, at least momentarily, and even Russia and China seemed to signal they might back more sanctions if Iran fails to demonstrate cooperation on the nuclear issue. If Iran remains obstinate, it could follow through on threats to halt exports of its crude production, even if it would ultimately damage its domestic economy more than the global energy chain.

Sovereign Risk Cold

Bond markets are interestingly positioned heading into December. Despite lingering concerns about sovereign defaults in parts of the globe ranging from Dubai to Greece to Ireland, the US jobs report on December 4th is still likely to dictate trading ranges in Treasuries for the rest of the month. Expectations are for another 120,000 net job losses and for unemployment to stay at 10.2%, following the big jump last month.

The year-end period is likely to be supportive for the Treasury market, given the usual month and quarter end forces magnified by an inclination amongst investors to book profits from riskier ventures and deposit them in the safe haven of government debt. For these reasons, the last two rounds of coupon supply for the year are likely to be well subscribed and yields on government paper are likely to finish the year at historically ultra low levels. Markets will be well aware that one banana peel remains in the form of the Treasury's $12.1T debt ceiling. This issue has recently been on the back burner, however many expect the limit to be reached in December.

Forex Outlook Uncertain

In the forex market, year-end trading conditions will be thin and the recent resurfacing of sovereign risk in the guise of Dubai World's debt restructuring could inject volatility back into the price action. The year-end focus might shift from weak USD sentiment toward Asian central banks turning up the pressure on the PBoC to nudge the yuan toward greater flexibility. The yuan's close link to the dollar is wearing on other central banks and governments, many of which increasingly view China's currency policy as a form of protectionism. With China's trade weighted index below its five-year trend, the weak yuan is starting to pinch the competiveness of other countries. Concurrently, China finds itself needing to tighten up policy somewhat as pressure on lending results in higher capital adequacy. Even a small adjustment could slow fragile Chinese domestic demand, which would further hurt other Asian exports to China. The dollar/yen pair exemplifies some of these pressures: the end of November saw USD/JPY test 14-years lows below 85, not too far from all-time lows of 79.80 set back in Apr 1995.

Japan's quarterly Tankan manufacturing assessment (expected to be posted early in the third week of December) may be the missing component that gets the new cabinet in Tokyo and the old guard central bank back on the same page. Over the month of November, both parties have swapped accusations, with government officials pointing to deteriorating deflationary trends and the central bank unexpectedly raising its assessment of the economy, just as the Nikkei225 sank to multi-month lows and the yen rose to a 14-year high. Improvement in Japan's manufacturing base has been one of the bright spots in an otherwise bleak economy. After six consecutive quarterly declines in the Tankan index, the last two quarters saw consecutive periods of improvement. That strong performance may well continue in Q3, with the private sector's monthly Nomura/JMMA figure hitting a three-year high in September and anecdotal signs the corporate sector is restarting some of the capacity that was idled during the recession.

Exit 2009

Meanwhile "exit strategies" are still on everyone's mind. Not much is expected out of the central bank meetings this month. The ECB renders its rate decision on December 3, the BOE meets on the 10th and the FOMC issuing its statement on the 16th. The Asia-Pacific region may provide the model for exiting, with Australia at the leading edge of recovery and stimulus withdrawal.

Australia's second consecutive quarter of GDP growth in Q2 is widely believed to have been behind the Reserve Bank of Australia's decision to become the first G20 central bank to begin raising interest rates. In early September, RBA Governor Stevens conceded that the pace of recovery was stronger than prior forecasts, citing resilient consumer spending and strong levels of exports, and foreshadowing the surprise rate tightening that began in early October. Therefore, on December 15th, markets will tune in for Australia Q3 GDP result - a hindsight reflection on accommodative monetary conditions and fiscal stimulus - before beginning to account for rate hikes that began in early Q4 as well as the waning impact of stimulus that is being scaled back as the recovery sets in. Private consumption and trade components may be particularly of note with this release. Q3 retail sales fell short of analyst estimates 2 out of 3 months in the quarter, while the trade deficit underperformed all 3 months through September, most recently falling to the largest monthly deficit level since March of 2008. Still if Australia can demonstrate a path to growth ex-stimulus it could give hope to the rest of the world economy.

CALENDAR OF NOTABLE EVENTS

12/3: ECB rate decision
12/4: US unemployment and payrolls data
12/10: BOE rate decision
12/16: FOMC rate decision
12/22: Final Revision on US Q3 GDP data; OPEC meets in Angola
Late December: Japan Q3 Tankan Survey

Economic Calendar

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!