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Oil Drops, Dow Pops 276

OIL DROPS, DOW POPS 276

The Dow rallied on Wednesday after strong results from Wells Fargo lifted the entire banking sector to it’s biggest one day gain in almost two decades. On top of that, a $4 drop in oil prices reduced inflation fears and fueled optimism about consumer spending.

This is the way Mr. Market takes care of the people who are short. What it did today was beat the snot out of them and then bury them on short hill. I expect more gains.

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BEST DAY FOR BANKS EVER

Wells Fargo provided anxious investors with pleasant surprise Wednesday by reporting a profit drop that was milder than anticipated and also by lifting its quarterly dividend by 10 percent.

The news was greeted with great enthusiasm on Wall Street and by the end of trading Wells Fargo , Washington Mutual and SunTrust led the overall banking sector to it’s biggest one day gain in almost two decades.

I don’t understand why Wells Fargo felt a need to raise the dividend, says Karen Finerman on Fast Money. I think they’re going to have more losses. I’m not saying they can’t manage them, I’m just saying why do it.

Shares of mortgage finance companies Fannie Mae and Freddie Mac also jumped on Wednesday after Fannie chief executive Daniel Mudd said that the company will not need to take advantage of recent emergency measures offered by the Treasury and Federal Reserve.

I think Tuesday was capitulation in US Bancorp. As a result I think USB is a buy, says Guy Adami. It should have 30-handle.

The action in financials looks bullish to me, too. If you think the financials have turned I’d look at the Ultra Financials ProShares , counsels Pete Najarian.

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OIL DOWN 7% IN 2 DAYS

Crude oil prices dropped sharply for a second day on Wednesday; the decline in prices marked the biggest two-day loss in percentage terms since January 2007.

Wednesday's losses came after the U.S. Energy Information Administration reported crude inventories rose by 3.0 million barrels last week -- countering expectations for a decline -- alongside builds in gasoline and distillate stocks.

The widely watched government report also showed U.S. oil products demand running 2.0 percent below year-ago levels, another sign that soaring prices are cutting into consumer demand for fuel.

I’m not convinced that this is a real break-down, says Jeff Macke. But if you trade the USO make sure to do it with tight stops. And if it dips under $105 get out.

I think Exxon and ConocoPhillips look attractive on a valuation basis, says Guy Adami. And I like Schlumberger ahead of earnings. I see a monster risk/reward opportunity in SLB on Thursday.

If you think oil is broken then I’d look at the DUG , counsels Pete Najarian. And for a trade you could look at the airlines .

If you think the $4 pull back in crude Thursday saved the airlines you’re out of your mind, exclaims Jeff Macke.

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IS ENERGY BULL DEAD?

As global demand for oil slows, supply should build. Does that mean the energy bull has run its course. For insights we turn to Steve Cortes, founder of Veracruz Research.

Basically, yes.

”I’m short the XLE ,” says Cortes. “The energy trade has really been sold to the investing world as a play on emerging markets on supposedly insatiable demand."

"But there’s a problem with that; the stock markets in the emerging Asian economies are down, nearly 50% this year. So I think the story is over. In other words Asia can not continue to fuel this kind of demand for resources.”

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INFLATION AT 17-YEAR HIGH

U.S. consumer prices in June rose by the biggest amount since 1982 on a continued surge in gasoline prices, adding more weight to an economy struggling through a financial crisis and a housing downturn, a government report Wednesday showed

The Consumer Price Index (or CPI), the government's key measure of inflation, advanced 1.1 percent during the month well above the 0.7 percent increase economists polled ahead of the report were expecting.

I expect to see a Fed rate hike later this year, says Guy Adami. That should help the dollar and knock the commodities down.

I don’t think the Fed can hike their way in front of the inflation problem, says Karen Finerman. I’m expecting it to be here for a while. The best way to play it is with companies that have enough power to raise prices such as Procter & Gamble .

I’d play inflation with Johnson & Johnson , counters Guy Adami.

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AFTER HOURS ACTION: EBAY

EBay on Wednesday gave a disappointing outlook that reflected caution about a U.S. economic slump and competitive threats to its online auction business, sending its shares down 7 percent after hours.

I don’t think the stock can get out of its own way. The shipping cost is just bludgeoning them, says Jeff Macke.

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WHY IS COAL SO VALUABLE?

Iron ore and coal miner Cleveland-Cliffs said on Wednesday that it would acquire Alpha Natural Resources for $10 billion in cash and stock, expanding its coal assets and positioning itself to capitalize on the boom in the global steel industry. They’re paying a premium of about 35 percent.

It’s all about electricity, says Pete Najarian. I’d still keep an eye on the sector.

I think your trade is Peabody Energy , says Guy Adami. I expect them to knock the cover off the ball.

I’m on the other side of that trade. I think the coal train has gone by.

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INTEL LEADS TECH

Chip stocks mostly climbed Wednesday after bellwether Intel reported its second-quarter profit climbed 25 percent, helped by strong sales of processors for laptop computers — a good sign for investors wary of possible slowing PC demand.

I purged my Intel today says Jeff Macke. I thought Wednesday’s market action was a good catalyst to get out.






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Trader disclosure: On July 16, 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 (GS), (MSFT), (USO), (WMT); Adami Owns (C), (AGU), (GS), (INTC), (NUE), (BTU), (MSFT); Najarian Owns (AAPL), (NOK), (TSO), (XLF), (GS); Najarian Owns (ANR) Puts; Najarian Owns (CSCO) Calls, (PRU) Calls, (SLB) Calls, (UYG) Calls, (YHOO) Calls; (WLT) Calls; Finerman Owns (GS); Finerman's Firm Owns (MSFT), (NOK), (SUN), (TSO), (TWX), (VLO), (AXP), (M); Finerman's Firm Owns (TGT) Calls; Finerman's Firm And Finerman Own (C) And (C) Leaps; Finerman's Firm Is Long SPX Index Puts; Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM)

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Veracruz LLC Is Short (XLE)

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ANR
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BTU
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CLF
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COP
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DUG
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EBAY
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FNMA
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FMCC
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INTC
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JNJ
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PG
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SLB
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STI
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USB
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USO
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PS ULT FIN
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WFC
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WM
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SPDR NRG SEL
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XOM
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