Fully 'Fixed' Friday: Extend and Pretend Edition

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 |  Includes: CAT, COL, CPX, DIA, DOV, FLIR, GE, GLD, GLL, HON, IWM, MCD, QQQ, RAI, SLB, SPY, STI, USG, USO, VOLVY, VZ, XRX
by: Philip Davis

SPY 5 MINUTE

All fixed!

Greece is getting another $229Bn at 3.5% with about 30 years to pay it from the EU (ie. Germany and France) and private bond holders will share about one-third of the pain by "voluntarily" renegotiating their own notes. Sounds like a really great offer, right? BUT WAIT, THERE'S MORE! Another $630Bn of already promised emergency aid has now been placed into a very slushy fund that will now allow the EU to throw money at any nation that so much as sneezes - WHETHER OR NOT THEY ASK FOR ASSISTANCE. This will allow them to play economic Whack-A-Mole, putting out all the little eurozone fires until that money runs out (about six months at the EU's current burn rate).

All this fantastic news from Europe has sent the dollar down to test the 74 line and that was down from 75.37 just ahead of yesterday's open and that's a 1.8% drop so we would expect our indexes to go up at least 1.8% - BUT - none of them did. In fact, the Nasdaq only gained 0.72% and the Russell was up 1.07% and the Dow was up 1.21% and the S&P was up 1.35%. The NYSE, which had been our perennial laggard, did the best yesterday - gaining a close, but still no cigar 1.57%.

Will we make it up today or is this an indication that things may not be quite so good as they seem? After the close yesterday, I did a news roundup for our members and there is still plenty to worry about and we took a stab at some SPY Weekly (today) $135 puts at .79 for our aggressive $25K portfolio on the off-chance they "fix" the U.S. debt ceiling and accidentally make the dollar strong again. At the moment, we are still playing our short lines in the futures, where we've been scalping nickels and dimes since my 3:23 a.m. alert to members (if you are not a Member, you can sign up here), where I said:

I like shorting the Futures here: S&P (/ES) at 1,346, Nas (/NQ) 2,415, Dow (/YM) 12,720 and Rut (/TF) 842.6 – as long as 74.20 hold on the dollar, we should get a bit of a sell off so these are levels to look for as the dollar heads back over that line but we can scale into position between 75.20 and 75.10 but, below that, too dangerous! Oil is good too below $99.50 with tight stops (now $99.66 so a patience game) – couldn’t quite get back to $100 ahead of the EU open.

We've had a couple of nice, quick hits already but we are, of course, waiting for the big one. I think any pre-market earnings miss by a big player would do it or, of course, some solution of the U.S. debt issue that involves budget cuts, which should strengthen the dollar. See - this is not complicated logic, is it? Anytime we get a good drop, we can set our stops and scale out the same way we scaled in - quickly leaving us ready to re-load on the next leg down while we wait for the market to open so we can collect our SPY profits as well if all goes well.

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Click to enlarge

There's no data today but we do have earnings from: Air Products (NYSE:APD), Caterpillar (NYSE:CAT), Rockwell Collins (NYSE:COL), Complete Production (NYSE:CPX), Dover (NYSE:DOV), Flir (NASDAQ:FLIR), GE (NYSE:GE), Honeywell (NYSE:HON), McDonald's (NYSE:MCD), Reynolds (NYSE:RAI), Schlumberger (NYSE:SLB), Suntrust (NYSE:STI), USG (NYSE:USG), Volvo (OTCPK:VOLVY), Verizon (NYSE:VZ) and Xerox (NYSE:XRX) - so plenty of chances for a major miss. GE is, of course, the Big Kahuna this morning with CEO Jeff Immelt acting as Obama's right-hand man on the President's Jobs Commission. As Bill Gunderson pointed out, this is kind of ironic as GE CUT its work-force from 323,000 employees in 2008 to 287,000 last year. I guess Obama was impressed that "only" 11% of GE's work-force was laid off - that's much less than the U.S. real unemployment rate of 21%.

8:30 Update: We just had a nice dip, down to 12,670 on the Dow Futures (50 points at $5 per point = $250 per contract), 1,341 on the S&P (5 points at $50 per point = $250 per contract), 2,400 on the Nasdaq (15 points at $20 per point = $300 per contract), 837 on the Russell (5.6 points at $100 per point = $560 per contract) and $98.90 on oil ($0.60 at $10 per penny = $600 per contract) so the winner this morning is - OIL! Over all, it's a very nice morning's work and, like last Friday, our trading day is already over and the rest is just for fun (although we'll be very happy to reload once again if our conditions reset).

Gold (/YG) shot up to $1,605 and that's the next thing I like for a futures short as that's a good line to stop back out at. Watch the dollar, of course, and if it can't hold 75.40, that's the signal to give up on gold shorts. For stock and options players, GLL at $21.33 is the Ultra-Short Gold ETF, and we like those Aug $22 calls at .50 with a month left to play.

Our pals at Fitch are back on the case, with their usual amazing timing, announcing this morning that the plan for private-sector participation in the Greek rescue would constitute a "restricted default," noting the proposed debt exchange implies a 20% net present value loss for banks and other holders of Greek government debt. Once new bonds are issued, Fitch will issue new ratings which will likely be below speculative grade.

GE came in with a small beat with infrastructure orders up 24%, reflecting robust strength in equipment orders, up 33% but we will have to find out how much of its earnings were boosted by a weak dollar. MCD also has fantastic earnings with revenues up 16.1% year over year - very impressive but, of course, MCD is cheap food and we've already seen other U.S. restaurants doing very poorly so it looks like families are trading their meals down - not really an economic booster. It looks like only 1% of MCD's gains came from a "currency benefit." CAT earnings were a miss but they have an excuse, saying: "The disaster in Japan had a $200 million negative impact on second-quarter sales." I guess we can give them that one ...

On the whole, the news today is not so bad and Factory Orders in Europe ticked up 3.6% in May (but that was May, not June!) so we can sit back and give the market the benefit of the doubt as long as we hold onto those technical on our big chart (see yesterday's post).

Disclosure: I am short SPY.

Additional disclosure: Positions as indicated but subject to change.