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Along with Earl, Has Market Pessimism Moved Out To Sea?

Published: Friday, 3 Sep 2010 | 5:37 PM ET

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By: Lee Brodie
Producer

On Friday, bullish investors glanced out the window cautiously, as rays of sunshine broke through dark storm clouds. No, we're not talking about Hurricane Earl.

The latest jobs report sparked hope that the worst of the market’s woes had finally moved out to sea - fears of a double dip.

Although the data still showed the economy shed 54,000 jobs overall, that wasn’t nearly as bad the Street feared. (In fact, private employment, considered a better gauge of labor market health, increased by 67,000.)

The bulls contend the jobs number was only the latest major report that showed the economy was on the mend.

Earlier this week ISM shocked investors by defying expectations of a decline and showing factory output increased. Also this week China's manufacturing sector staged a rebound and Australia's economy grew at the fastest pace in three years in the second quarter.

Considering the S&P has climbed about 5% over 4 days, along with the hurricane, has the market storm finally moved out to sea?

(.SPX)

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Instant Insights with the Fast Money traders

I do think the rally is sustainable, says Joe Terranova. Money managers who are overweight government debt will probably start to reallocate. The latest ISM data, jobs numbers and China PMI should all increase investors appetite for risk. The right trade is the hard trade; buy the market right here.

In August the trading low was 1039 and the high was 1128, adds Steve Grasso. I don’t see anything that suggests the market is anything but range bound and until the S&P breaks above 1130, I'd buy the dips and sell the rips.

I agree with Steve, we’ve been at this level before, says Guy Adami, and we never broke out of the high end of the range.

(Strategic investor Doug Kass also believes investors should buy the dips and sell the rips. Get all the details. Click here to read Kass: Last 55 Points of S&P Rally Is Probably Short Covering")

Looking at the 5% gain in the S&P, I interpret that as a bounce because the market was oversold, muses Scott Nations. I don’t think it’s an all clear sign with everyone rushing in to buy.

I’m watching the comparison of the 10-year yield and the S&P 500, says Stephen Weiss of Leerink Swann and author of The Billion Dollar Mistake. We’re seeing big diversions when typically they trade in lockstep. That’s worth watching.

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TOPPING THE TAPE: BANKS

The traders are keeping a close eye on the banks [XLF Loading... () ] after the sector went from worst to first during the first few days of September

Take a look:

                   August 2010                      This Week
Financials       -8%                          +5%
Industrials      -7%                          +4%
Technology     -7%                         +3%

What’s the trade?

I added to my Goldman [GS Loading... () ] position on Friday, says Joe Terranova. I believe $130 is support. A year from now, I think you’ll be happy to have been a buyer.

In the space, I like the CME [CME Loading... () ] , says Guy Adami.

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TOPPING THE TAPES: GLOBAL ECONOMIC NAMES...

The American economy may be on edge, but the world-wide trade is showing surprising strength. Commodities, industrials and transport names are all up on Friday.

What’s the trade?

In the space, I’d watch the price of copper [HGC1 Loading... () ], says Joe Terranova. The spot price of copper hit its highest level in more than four months. I think it’s telling you something.

(Copper is sometimes called "Dr. Copper" due to its ability to diagnose the state of the economy as well as the ebb and flow of the equity markets. Read More: Click here to go to "Is Copper Trying To Tell You Something?")

I like the rails, adds Stephen Weiss and I'd play it with CSX [CSX Loading... () ], Norfolk Southern [NSC Loading... () ] KSU [KSU Loading... () ] and Union Pacific [UNP Loading... () ] . All are worth a look.

If you're playing railroads also put CNI [CNI Loading... () ] on your radar, adds Joe Terranova.

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THE OIL ROIL

You could almost hear the collective sighs of relief in the energy trade this week after the Mariner platform fire turned out to be a much smaller incident than initially feared and Hurricane Earl was downgraded to a category 1 storm.

How should you play the space, now?

Although I'm bullish energy, I would not play oil futures [CLC1 Loading... () ] right now , says Joe Terranova. There’s an inventory glut and it’s going to present challenges to the front month contract.

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ARE WE TURNING THE CORNER?

As we mentioned above, a better than expected jobs report helped the market hold recent gains.

Although employment fell for a third straight month in August, the drop was far less than expected and private hiring surprised on the upside, easing pressure on the Federal Reserve to prop up economic growth.

Looking at the numbers, nonfarm payrolls declined 54,000, the Labor Department said Friday; markets had expected a drop of 100,000 jobs.

Meanwhile, private employment, considered a better gauge of labor market health, increased 67,000 after a revised 107,000 gain in July.

Markets had expected a rise of only 41,000 in August.

What else must you know about the jobs report? Find out from Joe LaVorgna, Deutsche Bank Chief U.S. Economist. Watch the video here.

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Trader disclosure: On September 3rd, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Nations owns (CME); Nations owns (SPY); Terranova Owns (APA), (AAPL), (BMO), (FCX), (GS), (IBM), (MRVL), (QCOM), (OXY), (SU), (XBI), (C), (POT), (GLD), (TBT); Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST); Jon Najarian owns (GS), short calls;

For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (DRYS)
Virtus Investment Partners own more than 1% of (EXR)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (XLK)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)

For Steve Grasso:
Stuart Frankel & Co and it’s partners own (BAX
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (DHR)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HPQ)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (TRV)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)

For Stephen Weiss
Weiss owns (CSX)
Weiss owns (INTC)
Weiss owns (BAC)
Weiss owns (INFN)
Weiss owns (FNSR)

For Joe Lavorgna
***No Disclosures***

For Eric Jackson
Jackson owns (SA)
Jackson owns (UXG)
Jackson owns (RBY)

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Topics:Fast Money | The Negotiator: Guy Adami | Stock Picks

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