OIL DROPS, STOCKS POP
The Dow rose Tuesday in another turbulent session after a pullback in oil prices eased worries about consumer and business spending. Also financial shares made gains after Ben Bernanke said he may keep open a lifeline for financial firms.
TAKING THE LOAD OFF FANNIE
Tuesday was a strong day for financial services firms with positive headlines generating momentum for this sector.
The selling in Fannie and Freddie eased on Tuesday after word came that the FAS 140 accounting rule change should not drive a capital change.
Meanwhile, Fed Chairman Ben Bernanke said that the Fed might extend emergency lending for big Wall Street investment banks that underwrite government bond auctions into 2009.
When Freddie and Fannie turned positive the market turned positive, says Pete Najarian. In the last 2 hours Bank of America and Wachovia turned and it led to a late day rally in the Financial Select Sector SPDR . Personally, I bought some Fannie today, he adds, but I also bought puts.
It doesn’t make sense that the government would create legislation that would drive Freddie and Fannie out of business, exclaims Jeff Macke. But I wouldn’t play financials, that’s like getting a hair weave and then going for a trim.
The rhetoric that I would not jump on is anything from Paulson, says Karen Finerman. What he says rarely comes to pass. I’d like to see write-downs come down. That would be good news.
OIL PLUNGES $5
U.S. crude closed down nearly $6, bringing it almost $10 off Friday's record high of $146 a barrel. It was the biggest single day drop in dollar terms since January 17, 1991.
And oil should continue lower to about $125 before resuming its rise again to $160 by end of the year, according to CPM Group founder and managing director Jeffrey Christian (CPM Group, is a commodities research and consulting firm.)
Christian also tells Fast Money that the short-term sell-off is the result of three things; 1) seasonal weakness, 2) increased production and 3) profit taking. "But this is a head fake," he says. "We should see oil resume its march higher, to about $170 by the end of the year because the global demand story remains in tact."
I also expect oil to slide in the near term, adds Joe Terranova, because in the second week of each calendar month you have index rolling which is natural selling pressure. So, I wouldn’t get too excited about the current sell-off. If you’re looking for a trade shift the chips so to speak. Move out of the USO and into the integrated names. Commodities are cyclical and we’re entering a period of weakness.
It’s tough to believe the oil run is over, counters Pete Najarian. I think we could see oil pop $5 in a day. And on a related note, I added to my position in Alpha Natural Resources, he says.
I covered the SPDR S&P Metals and Mining , adds Karen Finerman. Right now the risk reward in being short has changed dramatically.
Until the uptrend breaks in oil, I’m a buyer exclaims Jeff Macke. Until we go below $105 the uptrend isn’t broken.
AFTER HOURS ACTION: ALCOA
Earnings seasons kicked off with a positive report from Alcoa. The aluminum producer posted a smaller-than-expected drop in second-quarter profit, lifting its shares, as higher aluminum prices and sales volumes offset higher costs.
Sell the good news in Alcoa and sell the bad news in Alcoa and then wait a few days to re-evaluate, says Pete Najarian.
Looking ahead, I bought some retails stocks Tuesday because anything short of a disaster is good news for them, adds Karen Finerman.
I agree, says Joe Terranova. Maybe the expectations are so low that we can get a recovery.
Who are you kidding, counters Jeff Macke. It’s going to be a grim earnings season. My trading strategy right now is buying blue chips on dips and trend names such as the United States Oil fund as a trade.
TOPPING THE TAPE: DRUG STOCKS
The answer to your portfolio ills could be in your medicine cabinet; if the market is making you sick call your doctor… oh, the cliché’s we could write. But the bottom line is that drug stocks are working right now.
For example, a Goldman Sachs analyst recommended Teva stock despite disappointing trial results for Teva's multiple sclerosis drug Copaxone. Also Genentech closed higher on positive comments from Goldman.
Look at the biotechs, counsels Pete Najarian. I mean companies such as Genetech , Genzyme , Gilead and Biogen because they’ve been beaten down. It seems like there’s been a rotation out of commodities and into this space. Also I’m bullish on Merck.
I also bought Merck recently as well as the Pharmaceuticals HLDRS , adds Karen Finerman.
Abbott Labs has caught my eye, says Joe Terranova. But as a trade.
OPTIONS ACTION: CROCS
Pete Najarian is seeing unusual options activity in the September 7 Crocs calls.
Crocs was a $70 stock that’s now trading around $7, explains Najarian. The options speculation suggests it could rally.
Until they make a stink resistant helmet I wouldn’t touch this stock, exclaims Jeff Macke.
COMMODITY STOCKS UNWINDING
Commodity markets slumped for a third straight session Tuesday as a surging dollar and fewer worries over supplies hammered down energy, metals and agricultural prices.
Among industrial metals, aluminum lost 6 percent in London and copper fell nearly 4 percent in New York. Gold, which moves in step with oil but opposite to the dollar, also closed down.
"I think gold has farther to fall," says CPM Group founder and managing director Jeffrey Christian on Fast Money. "But that would be a buying opportunity because I expect it to go higher by the end of the year."
“As for currencies, I think you have a dollar that no one wants and a euro no one wants,” adds Christian. “So I think those people park their money in gold and silver.”
That’s a great point, adds Joe Terranova. There’s a real disinterest in currency.