May 5, 2010 - Issue #531

In This Issue

1. May Futures Market Forecast
2. Cotton Outlook by LEVEX Capital Management
3. Economic Calendar

1. May Futures Market Forecast

by Trade the News

Déjà Vu All Over Again?

Equities set fresh 18 month highs in the middle of April, as strong US economic data, tailwinds from China and a solid start to earnings season all combined to propel markets higher. But heading into May, as the European sovereign debt saga plumbs new depths, and Washington's grip over Wall St grows stronger, things are looking decidedly shakier. It's a familiar situation for traders in the post subprime era. Since the credit crunch lows were set in March 2009, markets have been spooked on many occasions. But each time a selloff in stocks looked imminent, investors still underweight equities and swimming in liquidity dived back into the market, buying each dip, enabling the rally to continue. With a number of significant headwinds to navigate in the month ahead, investors will inevitably be faced with the question, is this just another dip buying opportunity, a case of "deja vu all over again"; or is it something different in May, 2010?

For sovereign debt, the more things change, the more they stay the same

For a moment in April, it seemed as though resolution on Greece's long running fiscal tragedy had finally been achieved. How illusory that perception proved to be. Since the joint EU/IMF backstop was announced back in mid April Greece has suffered an upward revision to its 2009 budget deficit, a one notch downgrade at Moody's, and a two notch downgrade at S&P (where Greece is now rated BB+ or, in other words, junk). The crisis is evolving by the hour, but at the time of writing, German popular opinion remains steadfastly opposed to any bailout, and ambiguity surrounding deployment of the EU/IMF aid package remains high. According to press reports, European officials are now putting a price tag in excess of €100B for a bailout, significantly higher than the €45B already agreed upon.

2. Cotton Outlook by LEVEX Capital Management

courtesy of the LEVEX Capital Management Options Newsletter

Last week we shared a chart of the cotton futures market along with a potential option trade alert provided by LEVEX Capital management.

Those of you who signed up should have received LEVEX options newsletter on May 3rd with the following potential trade idea (below is a part of the newsletter):

LEVEX Capital Options Newsletter, May 3rd 2010

New Ideas

Looking at July cotton 80 puts for 150 points or $750 before commissions. Based on technical analysis I think that if July cotton breaks below 83.00, we have a potential for sell stops to get hit and some long liquidation to take place with a target of 77.50 based on the July contract. The options market in cotton is not the most liquid. I recommend chatting with your broker and get a feel for the market, limit price to work, etc.

Please note that the above are not trade recommendations but rather trade ideas for your review based on LEVEX Capital analysis. There are fees and commissions associated with trading futures and options. These fees will affect your profitability and should be discussed with your broker.

This newsletter provides trade ideas to be traded in multiples of two, if one wishes and can afford the risk associated. The main reason is that on certain ideas there will be two different targets.

As a general rule I recommend to invest no more than 20% of your account balance allocated to this newsletter on any one trade idea.

Time value - 39 days to expiration (June 11th).
Risk management - If option closes below 80 I would recommend to minimize damage.
1st Target - 250 ticks or $1250.
2nd Target - will send updates via this newsletter.

Today we were able to achieve the first target as the futures traded below 80.57 and the July 80 put option traded with a high of 250.

Chart for your review below.

If you would like to follow the rest of the "cotton story" along with other open positions in Mini Dow puts, Wheat calls, Live Cattle puts then sign up for 45 days free trial. If you like the ideas in the newsletter and you are a client of Cannon Trading, then you can subscribe after the free trial for $99 per quarter = $33 per month, which is special discounted price for Cannon Trading clients.

Click the image to enlarge. Click the "x" or press ESC to close.

Levex Capital Management Inc. publishes an options newsletter which provides medium-term (a few days to a few weeks) trade ideas using options and based mostly on technical analysis and its proprietary "Diamond" algorithm.

THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING: IF YOU PURCHASE A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIUM AND OF ALL TRANSACTION COSTS. IF YOU PURCHASE OR SELL A COMMODITY FUTURE OR SELL A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS AS WELL AS FUNDS IN EXCESS OF YOUR ORIGINAL DEPOSIT.. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE REQUESTED FUNDS WITHIN THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT. UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN THE MARKET MAKES A "LIMIT MOVE." THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR BROKER, SUCH AS A "STOP-LOSS" OR "STOP-LIMIT" ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS. A "SPREAD" POSITION MAY NOT BE LESS RISKY THAN A SIMPLE "LONG" OR "SHORT" POSITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER SIGNIFICANT ASPECTS OF THE COMMODITY MARKETS. YOU SHOULD THEREFORE CAREFULLY CONSIDER IF COMMODITY TRADING IS SUITABLE FOR YOU BEFORE YOU TRADE.

3. 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!