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The Dow [.DJIA Loading... ()
] dropped Tuesday while the broader stock market continued to languish despite positive news early in the day from Goldman Sachs. Worrisome economic readings including rising wholesale inflation and falling new home construction left investors in a selling mood. In the long run the world is going to end and the sun is going to explode, says Jeff Macke. But for now just stop and take a breath and put together your buy list.
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IS GOLDMAN NOT QUITE GOOD ENOUGH?
Goldman Sachs [GS
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] said quarterly earnings fell 11 percent as turmoil in financial markets hit trading and slowed investment banking, yet the firm again exceeded expectations by avoiding major losses on assets slammed by the credit crisis.
"I think Goldman is the island of relative safety but there just seems to be a lot more to work through before I can say it’s a buy,” says Fox Pitt Kelton securities analyst David Trone on Fast Money.
"We’re generally pretty cautious with (all) the brokers," he adds. "Not only did they have trouble breaking out in any sustained rally but there’s the looming threat of Fed regulation. And if the Fed ends up regulating them, their long term returns are going to be permanently suppressed and in my opinion they will consolidate."
I think Goldman below $160 is a buy, counters Joe Terranova.
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THE MORGAN TRADE
Meanwhile, the third and final chapter of broker earnings comes on Wednesday from Morgan Stanley [MS
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]. The Street expects to hear mostly positive news with analysts reasoning that its diversified businesses should help minimize the impact of the credit crisis. Profit of 92 cents a share is expected.
It’s worth noting that Morgan Stanley has already taken about $12.9 billion in write-downs since the middle of last year.
I think Morgan Stanley is setting up as a buy, says Guy Adami. I might be out of my mind but I think you can get long.
I don’t think so, counters Pete Najarian. The put buying suggests Morgan is going lower.
Also keep your eye on the regional banks, Najarian adds. Options action in KeyCorp [KEY
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] looks bearish to me. If you want to play the space play Visa [V
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]or Mastercard[MA
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] .
If you want to be in the financials I know what you need... a good therapist, exclaims Jeff Macke.
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BEGINNING OF THE END FOR OIL?
Oil prices settled lower on Tuesday for the third straight day as investors weighed expectations of higher output against the market's ability to quench soaring global demand. Also investors took note of plans by top exporter Saudi Arabia to boost crude output.
If you want to play oil I like Halliburton [HAL
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] and Schlumberger[SLB
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] , says Pete Najarian.
Just stick with what’s working, counters Jeff Macke. Why bother with those companies when you can play the United States Oil Fund [USO
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]!
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NATURAL GAS BACK TO KATRINA LEVELS
Natural gas prices are closing in on the record high prices reached in the aftermath of hurricane Katrina in 2005. And that's before increased demand pushes up prices when the weather begins to turn cold.
The way to play energy is with natural gas. Check out the United States Natural Gas Fund [UNG
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], says Joe Terranova.
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ANOTHER `BEST IN BREED' BEATEN (BEST BUY)
Shares of consumer-electronics retailers mostly fell on Tuesday, after Best Buy [BBY
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] reported first-quarter profit fell 7 percent, as customers bought lower-margin items such as notebook computers and video-game consoles.
Read More:
To find out how Jeff Macke recommends trading the news check out “Best Buy Or Better Buy.”
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CAN YOU SAY `STAGFLATION'?
Investors are worried that stagflation has become a growing concern. Housing starts are at their lowest levels in 17 years which could signal a stagnant economy. Also wholesale prices bolted ahead in May at the fastest pace in six months as energy and food costs marched higher. Meanwhile, a separate report showed industrial production unexpectedly fell 0.2%.
Those numbers look bad to me, says Joe Terranova. But I wouldn’t play stagflation with gold. I’m in favor of going with a market neutral strategy. In other words go long and short in the same space. For example if you like Wal-Mart then short Best Buy.
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WAL-MART ROLLING BACK ITS EXPENSES
Wal-Mart [WMT
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] on Tuesday lowered its capital expenditure forecast for its current fiscal year, saying it remains focused on moderating supercenter store growth in the United States.
Meanwhile, Chile's stock market halted trading in the shares of the nation's leading supermarket operator, D&S on Tuesday, after its stock rose nearly 15 percent, but the company said it could not explain the gains. Some speculate that they could be doing a deal with Wal-Mart.
Wal-Mart is a buy, says Jeff Macke. But not for the Chile speculation. That's just pocket change for the world's largest retailer.
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TURNAROUND STORY: EXCHANGES?
CME Group [CME
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] shares popped on Tuesday following U.S. Department of Justice approval of the derivatives giant's proposed acquisition of energy and metals exchange Nymex.
I think investors can own Nymex [NMX
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]as well as the NYSE[NYX
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], says Joe Terranova. They’re the new casino stocks.
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SOLAR INSIDE?
Unfazed by pressure from Democrats and the business community, Republicans for the second time in a week prevented the Senate from taking up a tax bill providing more than $50 billion in renewable energy credits and tax breaks for families and businesses.
I’m amazed that Washington did this, says Pete Najarian. But it doesn't matter. Companies in the alternate energy space sell mostly overseas. I think you buy the dip, he says.
My trade is Memc Electronics