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Turnaround Tuesday

TURNAROUND TUESDAY

The Dow surged by triple digits on Tuesday as oil prices fell and Merrill Lynch’s latest write-down raised hopes of a turning point in the credit crisis.

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BANKS RALLY ON MERRILL PURGE

Shares of Merrill Lynch soared on Tuesday after the company announced a fresh set of write-downs. Investors felt optimistic that Merrill’s purge meant the end is near.

“While Merrill has significantly diluted existing shareholders, we applaud this purging of assets as an attempt to cut its losses and focus on stabilizing its platform and righting the franchise toward growth," Oppenheimer & Co. analyst Meredith Whitney wrote in a research note.

Meredith has been spot on in the whole space, says Guy Adami. I think we saw capitulation in Merrill today and I expect Merrill to trade much higher.

From a short term trading perspective I agree with Adami, adds Sandler O'Neill securities analyst Jeffery Harte on Fast Money I’d buy Merrill as a trade. But I still have a hold on the stock long-term and I think there are still mortgage and credit problems to come.

The Merrill news sent the entire sector higher.

I don’t understand why it created such a huge run in banks, says Karen Finerman. I think it says there’s more bad news to come and I shorted the Financial Select Sector SPDR .

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The banks surged because Wall Street hates uncertainty, exclaims Jeff Macke. Even lousy news is better. There are only two ways to play banks, right now. 1) sit on the sidelines or 2) be a seller of rallies.

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OIL NEARS 3-MONTH LOW

Oil fell to its lowest level in nearly three months on Tuesday, extending a steep slide since mid-July on mounting evidence high prices and a souring economy are cutting into world energy demand.

The drop coincided with a firmer U.S. dollar, which may have reduced the appeal of commodities to some investors playing the strong negative correlation between the markets in recent months, analysts said.

I think the dollar will outperform the euro, says Guy Adami, believe it or not things are much worse in Europe than they are here.

I’m still short the British pound, adds Karen Finerman, but that trade's done nothing, so far.

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BREAKING NEWS: ELAN, WYETH ALZHEIMER'S DRUG DATA RELEASED

Right at 5pm, CNBC’s Pharmaceutical Reporter Mike Huckman presented just released data on an experimental Alzheimer’s drug from Wyeth and Elan.

The results, he explained, are from a small mid-stage study but suggest the drug could potentially be a huge blockbuster.

Here’s a synopsis of the results:

- Slowed down cognitive memory loss
- Slowed down functional memory loss
- Slowed down brain shrinkage
- 12 cases of brain swelling
- 3 deaths


“It could be great for people suffering from mild to mid-stage Alzheimer’s disease,” says Huckman on Fast Money.

I think the findings are huge for Elan, adds Pete Najarian and big for Wyeth. But remember it’s a Phase II study, it’s not going on the market tomorrow. I think Elan is a buy on the news if it pulls back to around $30.

Don't miss the First on CNBC interview with Elan CEO Kelly Martin Wednesday morning on "Squawk on the Street" around 9:40 am ET.

Read More:

> Pharma’s Market with Mike Huckman


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U.S STEEL RISES MOST IN 7 YEARS

Shares of United States Steel popped dramatically Tuesday after the steel maker reported record second-quarter gains and predicted further growth in the third quarter.

In a note to investors, Goldman Sachs analyst Aldo Mazzaferro wrote, "We expect significant positive performance from here on U.S. shares." U.S. Steel is also included on Goldman Sachs' "Conviction Buy" list.

I think Letter X is still fair on a valuation basis, says Guy Adami.

Also check out Alpha Natural Resources , adds Pete Najarian. I like the coal sector across the board. That includes Bucyrus and Walter Industries .

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AFTER HOURS ACTION: METLIFE

MetLife , the largest life insurer in the United States, said its second-quarter profit fell 19 percent, missing Wall Street expectations and sending shares down nearly 10 percent in after-hours trading.

I think their trouble probably stems from commercial real estate exposure, says Karen Finerman. Normally that’s a pretty safe investment, but not right now.

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BOONE DUMPS YAHOO

You gotta’ know when to hold ‘em, and know when to fold ‘em. Billionaire investor T. Boone Pickens has sold all of his holdings in Yahoo because he’s grown frustrated with the company's repeated rebuffs of Microsoft's advances.

"I think that Yahoo management was pathetic," Pickens told the San Francisco Chronicle in a story published Tuesday.

Pickens declined to quantify his losses, but he acquired his stake in mid-May when Yahoo was trading between $24 and $28 per share and the stock price hasn't climbed above $22.50 for the past week

It was a half-assed trade on his part, says Guy Adami.


















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Trader disclosure: On July 29, 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 (DIS), (MSFT), (WMT), (COST); Adami Owns (GS), ( C), (NUE), (MSFT), (AGU), (INTC), (BTU); Adami's Wife Works At Schering-Plough; Najarian Owns (TSO); Najarian Owns (WMT) Calls, (XLY) Calls; Najarian Owns (AAPL) Puts and stock; Finerman And Finerman's Firm Owns C; Finerman's Firm Owns (MRK), (GS), (VLO), (TSO), (MSFT), (SUN)

(BAC), ( C), (JPM), (MER), (MS), (LEH) Are Clients Of Sandler O'Neill; Sandler O'Neill Has Received Non-Inv. Bank Comp. From (BAC), ( C), (JPM), (MER), (MS), (LEH); Sandler O'Neill Has Advised Clients In Deals Involved (BAC), (JPM); Sandler O'Neil Expectes To Recieve Or Seeks Inv. Bank. Comp. From (BAC), (JPM), ( C) In Next 3 Months; Sandler O'Neill Was A Manager Or Co-Manager Of A Public Offering for ( C), (JPM) In Past 12 Month; (GS) Is A Non-Inv. Bank. Client Of Sandler O'Neill
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