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GM, Banks Lead Turnaround

Tuesday, 1 Jul 2008 | 5:44 PM ET

GM, BANKS LEAD TURNAROUND

The Dow closed higher Tuesday after General Motors surprised Wall Street with stronger-than-expected June sales and financial shares reversed earlier losses as investors scoured for bargains. Both the S&P and Nasdaq also ended higher.

I don’t buy into anything positive that happened today, says Pete Najarian. The whole world is out doing high kicks. Whopdedoo! It’s not over yet! I think the S&P has plenty of room to break back down.

A lot of investors are watching the VIX , explains Tim Seymour. They’ve got their eye on the 30 level. If and when it gets there they think it will signal a buying opportunity.

Rallies in bear markets tend to be the violent, adds Guy Adami. But there are certainly buying opportunities.

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GM TO THE RESCUE

General Motors surprised investors with a sales decline that was much smaller than expected, and the company's shares reversed earlier declines. By midday the car maker lifted the Dow out of bear territory.

It’s good for the market but not exactly inspiring, says Karen Finerman. It’s just the unlikeliest of heroes imaginable.

I told you that GM shares could bounce, reminds Guy Adami. I think you can get long with a well defined stop.

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BANKS FINALLY BOUNCE.

Lehman shares jumped after the WSJ reported that a bigger write-down was not ahead. Also Morgan Stanley recommended Lehman as a buy setting a price target of $31. Meanwhile Bank of America Corp. said Tuesday that it had completed its purchase of Countrywide Financial Corp.

Although the financials turned positive late day, Pete Najarian wouldn’t touch the banks with a ten foot pole.

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APPLE AWAKENS

Apple surged Tuesday on bullish Wall Street commentary. Lehman said the new 3G iPhone, as well as the Mac notebooks and general excitement about the company should boost year end sales.

I own Apple as well as upside call in RIMM, reveals Pete Najarian. And keep an eye on the semiconductor space.

Go downstream, adds Guy Adami. I like AT&T better.

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OPTIONS ACTION

Keep your eye on Prudential says, Pete Najarian. Options traders are buying Sep 50 puts. Also watch HSBCfor put buying.

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SAFER AT HOME?

Japan’s benchmark Nikkei fell for a ninth day on Tuesday, reversing earlier gains as investors remained jittery over inflation fears stemming from soaring global oil prices. But of all the global indexes Turkey fell the most on record oil and rising inflation.

I remain cautious on emerging markets, says Tim Seymour, especially in countries where inflation is higher than the cost of savings. Although the long term story remains in tact, in the short term interest rates could soar.

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PEDAL ON THE METALS?

Alcoa fell again Tuesday as investors worried that raw material costs could affect earnings next week. Also the SPDR Metals & Mining ETF fell as material costs soared.


I don’t think Alcoa is an earnings story, says Guy Adami. I see it as a takeover target.

The steel story is real, adds Pete Najarian. And the coal names rallied about 5%.

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AFTER HOURS ACTION: STARBUCKS

Starbucks is expanding its plans to scale back. On Tuesday after the bell the java giant announced it's closing 600 underperforming stores in the United States.

I think this is the kind of thing that they need to do, says Karen Finerman. Growth for growth's sake only is not what this company needs.

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TOO SHORT

Investors can’t help but wonder if bear market pessimism might be overdone in some stocks. For insights we turn to Stacey Gilbert, Susquehanna Market Strategist.

Focus on names that have seen excessive growth in their short positions in a relatively small period of time, counsels Gilbert.

But instead of buying the stock, establish a position in the options market by buying calls and then selling the corresponding put. Why? She says it will allow you to establish a synthetic position in the company and enhance returns if the stock gets any kind of short squeeze.

Names Gilbert likes best include VMWare, Sears and Under Armour.

Word on the Street
The Fast Money traders take a look at today's top business stories.

For an in-depth explanation of Gilbert’s trading strategy please watch the video.














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Trader disclosure: On July 1, 2008, 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 (C), (AGU), (BTU), (GS), (INTC), (MSFT), (NUE); Finerman Owns (GS); Finerman's Firm Owns SPX Index Puts; Finerman's Firm And Finerman Own (C) And (C) Leaps; Finerman's Firm Owns (MSFT), (SUN), (TSO), (VLO), (SBUX); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM); Pete Najarian Owns (AAPL), (NOK), (TSO), (XLF); Pete Najarian Owns (HBC) Puts, (MER) Puts, (RIMM) Calls, (SLB) Calls, (UBS) Calls, (WM) Calls, (YHOO) Calls; Seymour Owns (AAPL), (CFC), (F), (MER), (MSFT), (TSO), (TSL); Seygem Asset Management Owns (TTM), (PKX), (FMX); Seygem Asset Management Owns Shares Of Grupo Modelo

Stacey Gilbert Is a Market Strategist For Susquehanna Capital Gorup; Gilbert Does Not Cover Individual Securities; Susquehanna Capital Group Is A Market Maker In (SHLD), (VMW), (UA)

  Price   Change %Change
DJIA
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NASDAQ
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S&P 500
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AA
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BAC
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GM
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HSBA
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KOL
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PRU
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SBUX
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SHLD
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T
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UA
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VIX
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VMW
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SPDR FIN SEL
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SPDR SP MM
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AAPL
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  • Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

  • Scott Wapner is host of the "Fast Money Halftime Report," which airs weekdays from 12 p.m. to 1 p.m. ET.

  • Guy Adami is a contributor on CNBC's "Fast Money." He also is managing director of stockMONSTER.com.

  • Najarian, the "Pit Boss," is cofounder of optionMONSTER.com, a news site for options traders.

  • Finerman is president of Metropolitan Capital Advisors, Inc., a company she co-founded.

  • Founder of EmergingMoney.com

  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

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