Comment by Phil

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Phil
May 10th, 2011 at 10:12 am

Good morning again!  

So we have a new set of levels to watch and thanks to Elliott and Ilene for putting together this chart, which adjusts for the Dollar on the 5% rule.  We expect the Dollar to test 74.80, which it did this morning but we can assume that was forced through the usual shenanigans.  Europe is a freakin’ disaster but if we have a poor Treasury auction – we could look worse again at 1pm.  



Ireland owes $645Bn to EU banks mostly to Germany and England and that’s what the Greek crisis is all about because if the hot-blooded Greeks tell the EU to F off, then the fighting Irish will not be far behind.  On the other hand, if the EU rolls over for Greece, Ireland will demand the same terms – that’s why nothing is getting decided on Greece even though it seems "obvious" that they need the bailout.  On the whole, the strategy is all "extend and pretend" because the EU cannot afford to let this come to ahead right now.

So, at 9:45 the Dollar is at 75 on the button, but it’s not spooking the markets too much yet.  The Euro is $1.433 on expectations that Greece is "fixed" again.  The Pound is $1.633 and it’s 80.58 Yen to the buck, down from 80.87 at 3am.  When that 3 am trade is on the button like that – the Bots are usually in control so don’t expect much bearish action this morning unless the Dollar pops 75.25.

I mentioned TBT in the morning post, the weekly $33s shot up to $1.65 already and we may as well pay a dime for the May $33s at $1.75 at this point with a stop at $1.50.  Let’s go 10 of those in the $25KP, looking for .50+ to set a trailing stop (at $2.30 and then a .25 trail once we cross over $2.50).

At 2pm yesterday we went for the IWM May $83 puts at .75, those are now .45 and can be rolled up to the $84s at .70 (+25) and doubled down at .70 for net .85 on 2x so we’re down .15 and we stop out 1/2 at .85 which puts us back to 1x at a higher strike with a good basis.  That’s the plan anyway.  If things get worse (RUT over 850), then we sell the $83s and use that money to roll back to June $82 puts, now $1.22.  

DIA $126 puts were .99 yesterday, now .80 but the roll is .40 and not worth it (50% vs 33% on the IWMS) and .19 is not much to make up in 9 trading days on the Dow so we take no action there unless the Dow breaks 12,750 – which is where we thing we’ll top out.  That’s the line where we might want to DD, perhaps at .60 for a net .80 average.  

USO can be used to short oil off the $102 line with the May $40 puts at .80 (now .86).  There’s a .02 spread so you can play them off the line if you have an inexpensive broker – those puts were over $2 on Friday but you should be thrilled with $1.20.  

Tuesday’s economic calendar:
7:30 NFIB Small Business Optimism Index
7:45 ICSC Retail Store Sales
8:30 Import/Export Prices
8:55 Redbook Chain Store Sales
9:15 U.S.-China Strategic and Economic Dialogue
9:30 Fed’s Duke: Community Development Finance
10:00 Wholesale Trade
12:45 PM Fed’s Lacker: Economic Outlook
1:00 PM Results of $32B, 3-Year Note Auction 

Market preview: Stock futures hold gains after import pricesrose at a slower pace in April and margins for crude oil futures are raised 25%. S&P +0.4%. Microsoft’s $8.5B deal for Skype boosts overall investor sentiment but its shares are lower. Overseas markets advance and commodities gain as China’s April trade surplus exceeded expectations. Later: wholesale trade.

Notable earnings after Tuesday’s close: ARNA, DIS, DPTR, GMR,HRBN, MBI, MCP, MDR, NUAN, ROVI, SRX, STEC, ZAGG 

At the open: Dow +0.17% to 12706. S&P +0.3% to 1350. Nasdaq +0.35% to 2853.
Treasurys: 30-year -0.15%. 10-yr -0.1%. 5-yr -0.09%.
Commodities: Crude -1.19% to $101.33. Gold +0.25% to $1506.90.
Currencies: Euro -0.06% vs. dollar. Yen +0.42%. Pound -0.21%.

10:00 AM On the hour: Dow +0.33% to 12727. 10-yr -0.1%. Euro -0.03%vs. dollar. Crude -1.35% to $101.17. Gold +0.47% to $1510.20.

NFIB Small Business Optimism Index: -0.7 to 91.2, vs. -2.6 prior. It’s the second consecutive month of decline in small business optimism, and suggests the bulk of new hiring is happening in larger firms.

ICSC Retail Store Sales: 0% W/W, vs. -0.8% last week.+2.7% Y/Y, vs. +2.8% last week. Retailers saw solid Mother’s Day sales, and demand may be rising for non-discretionary goods.

April Import Prices: +2.2% vs. +2.6% prior. Ex-energy+0.6% vs. +0.3% prior.

Knocking down the Dollar at 10am – interesting timing:  House Speaker John Boehner raises the bar in talks over the U.S. debt ceiling, telling the Economic Club of New York that spending cuts must exceed any boost to the borrowing limit. Also, "raising taxes is off the table" because it would "have a devastating impact on our economy." The debt limit debate in Congress is now seen as stretching into July.

Bill Gross with a DD!  Bill Gross’s initial attempt at shorting U.S. Treasurys didn’t work out so great (they had their biggest rally in eight months) – so he’s doubling down. Pimco’s $241B Total Return Fund is now -4% in government debt, from -3% in March. Cash and equivalents soared to 37% from 31%. 

The WSJ reports Greece is expecting a new €60B aid package to be approved by the EU/IMF by next month. That amount would cover Greece’s financing needs through 2013. European shares are soaring. Stoxx 50 +1.45%. The euro is up a full cent from overnight levels at $1.4387. 

German officials get their minds right, backing off commentsabout Greek restructuring. "We’ll just have to bite the bullet and go along with (more aid) … the appetite for restructuring the country’s debt is not there," says the CDU’s budget spokesman. Greek banks rally. NBG+5.0% premarket. 

 "We don’t do Greece any favors if we speculate," on how fiscal reforms will work out, says Angela Merkel. With teams of EU and IMF auditors poring over Greek books until week’s end, Merkel is (publicly)withholding offering her opinion about further aid to the country. Comments from her lieutenants offer more clarity. 

The "Greece must restructure" crowd had the ball over the past week, but the "kick the can down the road" folks wrest control today. ECB members Nowotny and Bini Smaghi hit the tape, joining German lawmakers in calling for more aid and/or adjusting the existing loan package. 

The euro gives up some of its sharp morning gains after EU Economics Minister Olli Rehn says it’s premature to talk about a new rescue package for Greece. Earlier. FXE flat. European shares barely off of highs. Stoxx 50 +1.25%.

 TEPCO formally asks Japan for aid. Direct compensation costs could run into the tens of billions of dollars. TEPCO also faces ¥750B ($9.3B) of debt repayments this year and ¥1T of additional costs due to the outages of its nuclear units, and faces no chance of raising these sums in the markets.

Good news while WFR is on sale!  Japan nixes a plan to increase nuclear power to 50% of its energy source by 2030, instead putting its focus on renewable energy. The country currently gets 30% of its energy from nuclear power. PM Kan also announces he will take a pay cut until the nuclear crisis is resolved.

First Solar (FSLR -2.9%) and a unit of China Power New Energy Development say they will collaborate on solar-energy projects in China, the U.S. and other markets. First Solar is trying to gain access to China’s solar sector, as it and other producers face uncertainty over anexpected fall-off of business in Europe. (PR)

Singapore, with 3 institutions in the top 6, and Canada, with 5 lenders in the top 20, are the <a target="_blank" href="http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aLlRFB22G8B8" style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; border-top-width: 0px; border-right-width: 0px; border-bottom-width: 0px; border-left-width: 0px; border-style: initial; border-color: initial; outline-width: 0px; outline-style: initial; outline-color: initial; font-weight: inherit; font-style: inherit; font-size: 13px; font-famil