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Is Market Trying To Break Out Of Current Range?

Published: Wednesday, 8 Sep 2010 | 5:39 PM ET

Text Size

By: Lee Brodie
Producer

Both the Dow [.DJIA Loading... () ] and S&P [.SPX Loading... () ] closed in the green on Wednesday reversing losses from earlier in the week and triggering chatter about whether the market wants to march significantly higher.

Skeptics say volume was very light; a sign there's not much conviction behind the move. They believe the S&P is stuck in a range between 1040 and 1130 and after last week's sharp bounce, they think the S&P is nearing the top.

"Overall we're still locked in a fairly narrow trading range," says Joseph Battipaglia of Stifel Nicolaus in Reuters interview.

However other market pros point to a new and bullish development.

(.SPX)

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They're noticing an inverse head and shoulder formation that, they say, has developed in the S&P 500 chart.

"We may be building a base here," says Marc Pado of Cantor Fitzgerald in a Reuters interview. "The June, August highs of 1,130 are the key points, if (the S&P) breaks above that level then the year-end projection becomes a fairly obvious upside projection."

(In other words, if the S&P breaks above 1,130 technical analysis suggests it’s a sign a breakout rally will soon follow.)

How should you position now?

Instant Insights with the Fast Money traders

I took some risk off the table on Wednesday, admits Pete Najarian. 1100 has been a very difficult level for the S&P [.SPX Loading... () ] to break above. And there are a few other bearish signals - the Vix [VIX Loading... () ] is hovering near its 200-day.

Also, I don’t like the action in the XLF [XLF Loading... () ] , Najarian adds. The financials have to break above 15 before I think the S&P can break out. However, on the other side of the coin when I look at the strength in copper [HGC1 Loading... () ] it suggests to me the market isn’t going to fall apart, at least not yet.

I expect that sooner or later we break out of the trading range, muses Joe Terranova and I’m watching a few things as ‘tells’. 1) The price of oil – over the past couple days oil [CLC1 Loading... () ] has stabilized and climbed. 2) The path of the euro and the dollar – the euro and the S&P seem to be correlated. If the euro [EUR=X Loading... () ] can move to the upside I think that’s good for the S&P.

I don't see a lot of economic data coming over the next week that should drag down sentiment so I'm leaning positive, says Tim Seymour. I think the market probably melts higher for the next few days.

I can’t get in front of the market, says Karen Finerman. If you’re looking for a trade I’m bullish HP [HPQ Loading... () ]. At 8 and a half times earnings, I think it's a value play. The new CEO is a potential catalyst and with the resources HP has, I'd expect they get someone very, very good. In the not to distant future I think HP stock makes gains.

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FAST FLASH: PRECIOUS METALS

The traders are keeping a close eye on precious metals; particularly gold [GCC1 Loading... () ] after prices settled at a record high Tuesday.

(GCc1)

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Gold for December delivery added $8.20 to settle at $1,259.30 an ounce after reaching $1,261.60 earlier in the day. Its record high settlement price was $1,258.30 an ounce, although it has reached an intraday high of $1,266.50 an ounce. Both occurred in late June.

Some analysts believe gold could rise even higher in the months ahead as investors use the asset as a hedge against riskier bets and as more people buy gold during the fall festival season in India.

Gold isn't the only metal performing well - the Silver ETF [SLV Loading... () ] as well as Silver Wheaton [SLW Loading... () ] hit 52-week highs.

What’s the trade?

I think both gold and silver are good trades but I wouldn’t buy here, says Brian Kelly. I’d wait for a pullback.

With gold at current levels, if you want to put money to work in metals I think you get more bang for your buck long copper [HGC1 Loading... () ], says Joe Terranova. I'd play it long Freeport [FCX Loading... () ] . Elsewhere in the space I'd also look at oil [CLC1 Loading... () ], he says.

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THE OBAMA TRADE

Don’t hold your breath hoping President Obama will change his stand on extending the Bush tax cuts for the rich.

Not only did he blast the idea on Wednesday, he also delivered a searing attack on Republicans for advocating "the same philosophy that led to this mess in the first place."

Obama said the struggling U.S. economy can't afford to spend $700 billion to keep lower tax rates in place for the nation's highest earners despite a call by House Minority Leader John Boehner and other GOP leaders to do just that.

What’s the trade?

The markets move when Obama was speaking was very mild, muses Tim Seymour. I don’t think the market is expecting much.

But the market doesn’t need fiscal policy, adds Joe Terranova. There are plenty of signs that suggest a double-dip is off the table.

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BP REPORT

The traders are watching the action in the energy sector after BP [BP Loading... () ] chronicled a series of mistakes they say led to the Deepwater Horizon explosion.

Although they accepted partial blame, they also said some of the responsibility lay with Transocean [RIG Loading... () ] and Halliburton [HAL Loading... () ]. All three companies closed higher

What’s the trade?

I’m long BP, reveals Karen Finerman. And I have to say I don’t think it’s up to BP to assign blame.

I’d wait and see if BP breaks above $40, says Pete Najarian. If it does break higher then I’d look at the stock.

Part of the move higher probably stems from the fact that investors can begin to quantify the damages, says Tim Seymour. However, in the space I’d rather play Total [TOT Loading... () ].

In the space, I’d look at Occidental [OXY Loading... () ], Sunor [SU Loading... () ], Apache [APA Loading... () ] or Ultra Petroleum [UPL Loading... () ], says Joe Terranova.

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THE AG TRADE

Fertilizer stocks landed on the radar but not only Potash [POT Loading... () ] - the one you keep hearing about. Rivals Agrium [AGU Loading... () ], Mosaic [MOS Loading... () ] and Intrepid Potash [IPI Loading... () ] also made sharp gains on Wednesday.

What’s the trade?

I think there’s a little more upside in Potash though above $160 it gets less attractive, says Brian Kelly. I think the better play is long Andersons [ANDE Loading... () ].

I’d look at DuPont [DD Loading... () ], says Pete Najarian.

I expect the space to out perform the S&P, says Joe Terranova. Fundamentals are strong.

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FAST MESSAGE: YOUR QUESTION ABOUT… ANDERSONS

Charles from Texas

Charles writes “In an otherwise strong market for ag stocks, The Andersons [ANDE Loading... () ] dropped over 3%. I bought some shares. Am I about to get burned?

It’s one of my favorite names in the space, says Brian Kelly. I’d hold on.

----

NEW TECH DEVELOPMENTS

Is it us or does it seem like new developments in tech are coming almost on a daily basis?

On Wednesday Google [GOOG Loading... () ] introduced Google Instant, a new feature that shows search results as you type – essentially predicting a query.

Just one day earlier, on Tuesday CEO Eric Schmidt said Google will launch a new service to provide full Internet browsing via your television as soon as this fall.

Also this week, Amazon [AMZN Loading... () ] purchased Amie Street for an undisclosed amount in an attempt to expand its position in the music download market and better compete against iTunes.

And, as you likely remember, last week Apple [AAPL Loading... () ] CEO Steve Jobs introduced the new and improved Apple TV, which allows users to browse and rent movies, as well as TV shows and more.

How should you trade the wake of these rapid fire developments?

Who better to ask than Citi analyst Mark Mahaney. Find out what he tells the desk. Watch the video now!

FAST MONEY // Latest Rapid Recap

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Trader disclosure: On Sept. 8th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (SPY); Finerman's Firm Is Short (IJR); Finerman's Firm Is Short (MDY); Finerman's Firm Is Long S&P Puts; Finerman's Firm Is Long Russell 2000 Puts; Finerman's Firm Owns (BAC), (BAC) Leaps; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm And Finerman Own (BHP); Finerman Owns (GOOG); Finerman's Firm Owns (HPQ); Finerman's Firm Owns (JPM), (JPM) Leap; Finerman Owns (JPM); Finerman's Firm Owns (MCD); Finemrna's Firm Owns (ORCL); Finemran's Firm Owns (WMT; Najarian Owns (AKAM) Call Spread; Najarian Owns (BRCD) Calls; Najarian Owns (HPQ) Calls; Najarian Owns (POT) Call Spread; Najarian Owns (ICK); Najarian Owns (SCCO); Najarian Owns (DD); Najarian Owns (TEVA); Najarian Owns (PFE); Najarian Owns (NOVL); Najarian Owns (MMR); Terranova Owns (AXP), (APA), (AAPL), (ARUN), (BMO), (C), (FCX), (XBI), (GS), (IBM), (JOYG), (MRVL), (OXY), (ORCL), (POT), (QCOM), (GLD), (RSH), (SU), (UPL), (X)

For Mike Khouw
Cantor Fitzgerald & Co. Is A Market Maker In (BWA)

For Brian Kelly
Accounts Managed By Kanundrum Cpaital Own (GLD)
Accounts Managed By Kanundrum Cpaital Own (GDXJ)
Accounts Managed By Kanundrum Cpaital Own (SLV)
Accounts Managed By Kanundrum Cpaital Own (VRSN)
Accounts Managed By Kanundrum Cpaital Own (RAX)
Accounts Managed By Kanundrum Cpaital Own (DRIV)
Accounts Managed By Kanundrum Cpaital Own (ANDE)
Accounts Managed By Kanundrum Cpaital Own (TBT)
Accounts Managed By Kanundrum Cpaital Own (POT)
Accounts Managed By Kanundrum Cpaital Are Long U.S. Dollar
Accounts Managed By Kanundrum Cpaital Are Long Swiss Franc
Accounts Managed By Kanundrum Cpaital Are Long Yen
Accounts Managed By Kanundrum Cpaital Are Short (XLF)
Accounts Managed By Kanundrum Cpaital Are Short (IAI)
Accounts Managed By Kanundrum Cpaital Are Short (MCO)
Accounts Managed By Kanundrum Cpaital Are Short (AFL)
Accounts Managed By Kanundrum Cpaital Are Short Pound
Accounts Managed By Kanundrum Cpaital Are Short Australian Dollar
Accounts Managed By Kanundrum Cpaital Are Short Euro

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 (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 (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 (XLB)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLF)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)
Virtus Investment Partners own more than 1% of (DLUEY)
Virtus Investment Partners own more than 1% of (DRYS)

For Mark Mahaney
Citigroup Global Markets Owns 1% Or More Of (YHOO), (AKAM), (NFLX)
Citigroup Global Markets Or Affiliates Managed Or Co-Managed Public Offering Of (PCLN), ReachLocal
Citigroup Global Markets Or Affiliates Received Investment Banking Compensation From (PCLN), ReachLocal For Services Provided In Past 12 Months
Citigroup Global Markets Or Affiliate Recieved Non-Investment Banking Compensation From (GOOG), (YHOO), (AMZN),(EXPE) In Past 12 Months
(PCLN), ReachLocal Are Or In Past 12 Months Were Investment Banking Clients
Of Citigroup Global Markets
(GOOG), (YHOO), (AMZN), (EXPE) Are Or In Past 12 Months Were Clients Of
Citigroup Global Markets (Non-Investment-Banking, Securities-Related Services)
(GOOG), (YHOO), (AMZN), (EXPE) Are Or In Past 12 Months Were Clients Of Citigroup Global Markets (Non-Investment-Banking, Non-Securities-Related Services)
Citigroup Global Markets Is A Market Maker In (GOOG), (YHOO), OpenTable, (AMZN), (AKAM), (NFLX), (EXPE), (PCLN), Vistaprint NV, (NILE), GSI Commerce, Reach Local
Citigroup Global Markets And/Or Affiliates Has A Significant Financial Interest In Relation To (GOOG), (YHOO)
Citigroup Global Markets Or Affiliates Owns 5% Or More Of (YHOO)

For Greg Badishkanian
A Citi Analyst Owns (WFMI)
Citigroup Global Markets Or Affiliates Owns 1% Or More Of (DPZ), (CCL)
Citigroup Global Markets Or Affiliates Managed Or Co-Managed Offering Of (MCD), (HOG), (HAS) In Past 12 Months
Citigroup Global Markets Or Affiliates Has Recieved Investment Banking Compensation From (MCD), (RCL), (HOG), (HAS) For Services Provided In Past 12 Months
Citigroup Global Markets Or Affiliate Recieved Non-Investment Banking Compensation In Past 12 Months From (BKC), (MCD), (CCL), (RCL), (HOG), (HAS), (JAH), Weight Watchers International
(MCD), (RCL), (HOG), (HAS) Are Or In Past 12 Months Were Investment Banking Clients Of Citigroup Global Markets
(BKC), (MCD), (CCL), (RCL), (HOG), (HAS), (JAH), (HAIN), Weight Watchers International Are Or In Past 12 Months Were Clients Of Citigroup Global Markets (Non-Investment Banking, Securities-Related Services)
(BKC), (MCD), (CCL), (RCL), (HOG), (PII), (HAS), (JAH), Weight Watchers International Are Or In Past 12 Months Were Clients Of Citigroup Global Markets (Non-Investment-Banking, Non-Securities-Related Services)
Citigroup Global Markets And/Or Affiliates Has A Significant Financial Interest In Relation To (CCL), (RCL), (HAS)
Citigroup Global Markets Owns 10% Or More Of (CCL)
Citigroup Global Markets Is A Market Maker In (UNFI), (WFMI), (HAIN), (HANS)