ON THE BRINK OF BEAR MARKET
Stocks slid Monday on concerns that housing woes aren’t nearly over. Also, in an example of what’s good for Main Street isn’t always good for Wall Street, as the price of oil tumbled shares of energy companies tumbled too. The S&P 500 finished within 1 point of the level that would confirm it is in a bear market. The Dow and Nasdaq are already trading in confirmed bear markets.
Unfortunately a $4 drop in oil won’t do anything for gasoline or the economy, says Jeff Macke.
But the problem right now isn’t oil, it’s Fannie and Freddie adds Pete Najarian.
CAN WE LEAVE BANKS BEHIND?
It was another tough day for the financial services sector. Shares of mortgage purchasers Fannie Mae and Freddie Mac tumbled Monday after a Federal Reserve official warned housing market problems would likely extend into next year and an analyst said accounting changes could leave the two woefully short of necessary capital reserves.
For years, accounting standards allowed U.S. banks to keep certain loans, such as those linked to risky subprime mortgages, in off-balance sheet vehicles. But members of the Financial Accounting Standards Board (FASB), which sets U.S. accounting rules, have become convinced that approach hid the true risks banks faced from these vehicles, and that standards must be changed.
Under direction of the Securities and Exchange Commission, FASB must revamp the accounting standard, known as FAS 140, by 2009. It could release a proposal on the new rule in the next few months.
I think you can play Freddie or Fannie with a tight stop, counsels Guy Adami, but only as a day trade.
Mewanwhile, Merrill Lynch will decide whether it will sell its stake in BlackRock early this week, CNBC has learned. CEO John Thain will likely sell no more than a 25 percent stake in BlackRock, but that situation could change depending on the size of Merrill's write-downs.
Be careful of the space, counsels Pete Najarian. If you feel you must get into Merrill or Citigroup because they seem cheaom then buy some puts to protect yourself.
And on a related note, options action in Annaly Capital suggests this stock could soon mover lower, he adds.
IS OIL RUN OVER?
Oil prices tumbled nearly $4 a barrel Monday, erasing many of last week's record gains in a single session as concerns about potential supply disruptions eased.
Traders drove prices sharply higher at the end of last week as they bet that conflict with Iran or some other event could cut supplies, and they didn't want to get caught unprepared over the long Independence Day weekend. However, as concerns about supply disruptions subsided, many traders on Monday sold off contracts they had bought as insurance last week.
I think the selling continues through the end of the week, says Joe Terranova. I see some weakness in the market and it could be an opportunity to pick up companies such as Suncor (which he owns) or Schlumberger and Halliburton .
The market is awful and I think Halliburton, Schlumberger as well as other oil services stocks are under pressure, counters Guy Adami. Trade cautiously.
Let the trends play themslves out, adds Jeff Macke. But as far as I can tell the oil charts aren’t broken, at least not yet.
Oil needs to crack below $135 before I think you can get into the refiners, adds Terranova. Right now that trade doesn’t work.
Refiners... refiners are the snake pits of doom, Macke exclaims.
BIGGEST COMMODITY DROP SINCE MARCH
Corn and soybean prices tumbled Monday, falling the maximum allowed limit on expectations that warm, dry weather in the Midwest will help crops recover from last month's floods and ease supply concerns.
Other commodities traded sharply lower in a sell-off led by crude oil, which lost more than $4 a barrel. Gold, silver, copper and other energy futures all fell.
I think you’re seeing what a strong dollar can do to commodity prices, counsels Guy Adami. I think now the path of least resistance is higher for the dollar.
Monday's sell-off gives you a shot at Potash , counters Jeff Macke. I say play it on the long-side with a stop at $205.
Alpha Natural and Walter Industries are worth looking at in a pull back, says Pete najarian. But make sure to also buy put protection. And keep an eye on Patriot Coal , he counsels.
The coal index moves dramatically, cautions Karen Finerman. Be careful. And I think you can make a case for them being overvalued.
YAHOO DEAL BACK ON AGAIN, AGAIN?
Microsoft said Monday it would be willing to reopen talks to buy all or part of Yahoo!, but only if a new Yahoo board is elected, a major boost for investor Carl Icahn's board slate. Meanwhile, Yahoo's board remains open to resuming full buyout talks, according to a person close to Yahoo's thinking.
On Wednesday Piper Jaffrey analyst Gene Munster told Fast Money, “Microsoft wants Yahoo and at the end of the day I think that’s going to happen. We believe by the end of this year you’ll see Microsoft and Yahoo come together…. at around $28 - $31/share.”
It seems to me that Microsoft is supporting Icahn right now, says Karen Finerman, but the whole thing is turning into a circus.
I think it goes as one full piece, adds Pete Najarian.
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Trader disclosure: On July 7, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (ATVI), (WMT), (DIS), (MSFT); Najarian Owns (AAPL), (NOK), (TSO), (XLF), (XTO), (FNM), (ANR); Najarian Owns (FNM) Puts, (MER) Puts; Najarian Owns (RIMM) Calls, (SLB) Calls; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman's Firm Owns (GE), (MPG), (MSFT), (SUN), (TSO), (VLO); Finerman's Firm And Finerman Own (PDE); Finerman's Firm Owns SPX Index Puts; Finerman's Firm And Finerman Own (C) And (C) Leaps; Finerman's Firm And Finerman Own (FLS); Finerman's Firm Is Short (SPG), (IYR), (IJR), (MDY), (SPY), (IWM); Finerman's Firm Is Short (XME) And Owns (XME) Puts
GE Is The Parent Company Of CNBC; NBC Universal Is The Parent Company Of CNBC; Vivendi Owns 20% Of NBC Universal, The Parent Company Of CNBC
Terranova Is Long Dollar Index Futures; Terranova Owns (SU); Phoenix Investment Partners Ltd. Is Long (XOM), (COP), Chevron