I love it when a plan comes together!
As you know, we took an aggressive, protective short on Wednesday afternoon so it was "wheeeeeee!" on the dip with our prediction of XLF hitting $14 coming in to the penny while our JPM bottom target of $34.75 missing by .10, as we bottomed out at $34.85 before popping back $1 (3%) but, in all fairness, I did say "around $34.75" in the morning – so we knew it wasn't an exact target.
While we bottom-fished all day, I officially called the turn at 2:48, saying to our Members in Chat:
If you want a thrill ride, you can now buy the QQQ next week $61/62 bull call spread for .55 and that should be able to stop out with a .20-25 loss if things go badly tomorrow but make a nice double if the Qs head back up (now $61.58). Note we got wiped out on our this week $63s so not at all a sure thing.
Also, UCO just seems silly at $23.50 with July 4th coming up – I like the July $23/24 bull call spread at .50.
TNA next weekly $47 calls at $2.15 are also fun but those can cost you if things go the wrong way but TNA was $50 2 days ago and $52.50 2 weeks ago so they could make a nice payoff quickly.
Damn, I guess I still think the EU comes through tomorrow….
We didn't have to wait until tomorrow, of course. Someone (who will never be investigated) jumped the gun with a $3.3Bn block purchase of 50,000 S&P E-Mini Futures and that reversed almost all of the day's drop into the close. Then we got word of the expected $120Bn whatever they are calling it from the EU after hours and we got even better news at night as they took various steps to do stuff that I really don't care about because it isn't enough cash and it's going to fail again unless they pump it up by about 3x today.
As we know from PSW's secret formula – $120Bn buys 12 points on the S&P so 1,341 is the target but now we have to factor in the fact that the EU will capitalize the banks directly, so that will change the equation a bit as the Sovereigns won't be taking on more debt to "fix" the Financials.
In case you're not sure how that works – it's just like the way the US pretends it didn't take on any debt when the Fed ran up a $3Tn balance sheet by first writing checks on money it didn't actually have and then receiving the asset and balancing their checkbook by declaring the cash value of the asset at face price with no depreciation or anything that would be considered ordinary under standard accounting practices.
So everything is fine, I guess.
We're taking the money and running back to cash for the weekend. No reason to cut our hedges – they will now become our bearish bets into next week unless, of course, the EU drops another $400Bn on us today. If not – $120Bn is just another sugar rush and won't fix a thing – even the yields on Spanish bonds only fell 0.31% to 6.63% and Italy dropped 22 basis points to 5.98% – that kind of sucks doesn't it?
Think about it: "Hi we had our massive conference with the entire EU and we all put our heads together and chipped in $120Bn and changed the rules and promised a stronger union going forward and all that effort managed to shave less than 5% off historically high bond rates for the countries we are supposed to be helping." If they were being graded, an F would be far too kind!
You can see it in the Euro too – only back to $1.257 this morning – rejected at $1.26. Sucks! The Dollar is testing the $82 line and the Euro and Pound $1.56 so very easy to use those charts to decide how long we can give our own indexes a chance to rally but up just 1.5% pre-market for $120Bn in cash and a lot of hot air – SUCKS!
Still, as you can see from the above chart, our EU cousins are VERY happy this morning, with the DAX and CAC up nearly 4% in the day into lunch and the FTSE behind at 2.25% (but they're not in the EU, of course), so we have a lot of catching up to do and I expect a nice little pop at the open – the kind of excitement we'll be selling at least half into and then we can set some levels and see how it goes from there.
We'll be watching with great interest the highs of the 19th (that were bought with the $125Bn Spanish bailout that lasted one day) at Dow 12,900, S&P 1,365, Nasdaq 2,940, NYSE 7,800 and RUT 790 and that lines up pretty well with our 5% lines at Dow 12,800, S&P 1,360, Nas 2,925, NYSE 7,800 and Russell 800 so pretty tough resistance that is not likely to be futile today and only if we do make a clean break over those lines will we be able to keep a bullish stance into the weekend.
It's still all up to the EU as they wrap up their conference today. As Spain proved last week – $120Bn is a drop in the bucket and will give us nothing more than a sugar high. After this our attention will turn back to the weak data we are getting from China, Japan and India as well as our own Q2 earnings reports, which kicks off in earnest a week from Monday with AA's earnings report along with TXN on the 11th, GOOG on the 12th and JPM and WFC on the 13th. THEN we'll have some idea of what's going on.
Until then, let's be careful out there!
Have a great weekend,
– Phil
