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Dow Drops Over 200 Points

Monday, 25 Aug 2008 | 5:51 PM ET

DOW FALLS OVER 200 POINTS

The Dow fell sharply on Monday as credit concerns hounded financial stocks while global growth worries hurt big technology and industrial companies.

The problem was that the market didn’t get any help in other areas, explains Pete Najarian. That’s why there was such a big down move.

There was just no catalyst to take the market higher on Monday, adds Joe Terranova. I asked myself, what will take the market higher going forward?

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AIG SHARES HIT 13-YEAR LOW

American International Group , the world's biggest insurer, was among the top drags on the Dow, with its shares falling to a 13-year low. Credit Suisse cut the company's share price target and forecast a huge loss for the insurer.

"AIG's credit default swap portfolio inherently makes it one of the most exposed names to recent credit deterioration," Credit Suisse analyst Thomas Gallagher explains on Fast Money.

(Credit default swaps are essentially a type of insurance on complex financial contracts.)

Gallagher also cut his price target on the company to $22 a share from $30 a share to reflect, in part, "what we view to be a heightened risk profile owed to uncertainty regarding ratings."

“We think AIG is facing a hard decision," Gallagher adds. "Either they will have to do a large capital raise or see a huge downgrade of their debt. Or potentially both."

So what's the trade?

"We don’t think the time to buy is now,” he concludes.

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LEHMAN LEADS BANK SELLOFF

Shares of Lehman Brothers dragged the sector lower after developments suggested South Korea’s Development Bank might be rethinking a decision to invest in the besieged investment bank.

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

I can’t imagine why an investor would buy Lehman, says Guy Adami. And quite frankly I don’t think there will be a takeover.

From the options action I see, says Jon Najarian, I’m not seeing investors betting Lehman will go higher. They’re merely betting on stabilization.

Among the few gainers on the day were home finance firms Fannie Mae and Freddie Mac, which reversed large losses suffered last week on speculation a possible government bailout could wipe out shareholders.

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GOLDMAN BREAKING DOWN.

Technical analysis suggests that Goldman is breaking down. The stock crossed $160 to the downside.

The best of breed names need to start working before the market can move higher, says a frustrated Joe Terranova.

Ironically Goldman picked Morgan Stanley as the stock that could weather the crisis better than anyone else because of the mix in their portfolio, says Pete Najarian.

I like Morgan Stanley more than Goldman, adds brother Jon Najarian.

I’m long Goldman with AIG puts against it, reveals Joe Terranova.

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OPTIONS ACTION: SUNTRUST & WELLS FARGO

Jon Najarian is seeing unusual options action in SunTrust and Wells Fargo.

Options action suggest that investors are making bets to the downside, but they’re small moves. Investors seem to think these stocks could drift lower through the first week in September but they’re both solid banks.

I’d look at USB , adds Guy Adami. I think it’s a best of breed play.

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TROUBLING TECH TRADE

Technology shares also fell on Monday amid concerns about the global economy. Apple was the top pull on the Nasdaq. Ninety-seven of the Nasdaq 100's stocks were in the red on the day.

The tech trade could be AMD , says Guy Adami. Although the company looks like a train wreck it doesn’t mean the stock can’t go higher.

I’m seeing unusual activity in Rambus, says Jon Najarian. Options are moving like the stock could explode to the upside.

I like Hewlett-Packard , says Pete Najarian. I think the EDS acquisition will start putting money in their pocket. Also, watch the VIX , he adds. The volatility jumped on Monday.


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MOST `FOR SALE' SIGNS EVER

New data shows the inventory of homes for sale rose to a record 4.67 million in July while lower prices also bruised sentiment.

I give it at least 6 more months before the sector bottoms, says Pete Najarian.

I think the most interesting news out of the sector was Morgan Stanley saying they like Lowe’s over Home Depot, says Guy Adami. Personally, I think HD stacks up nicely right here.

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TROPICAL STORM BOOSTS OIL

Oil rose on Monday as Tropical Storm Gustav formed in the Caribbean, stirring concerns that it could disrupt oil and natural gas output in the Gulf of Mexico as it moves northwest.

The volume in oil trading was down substantially, says Joe Terranova. I think you should stay out of crude futures as well as oil stocks for the short term.


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OPTIONS ACTION: TITANIUM TRADE

Pete Najarian is seeing unusual options action in Titanium Metals .

The volume of call buying suggests to me that this stock could go higher.


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Trader disclosure: On Aug 25, 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 (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Pete Najarian Owns (CSCO) Call Spread, (RIMM) Call Spread, (TIE) Call Spread; Pete Najarian Owns (AAPL) And Is Short (AAPL) Calls; Pete Najarian Owns (XLF) And (XLF) Puts And Is Short (XLF) Calls; Pete Najarian Owns (LEH) Put Spread; Pete Najarian Owns (MS) And Is Short (MS) Calls; Jon Najarian Owns (AAPL), (C), (RMBS); Jon Najarian Owns (TIE) Calls; Jon Najarian Owns (BRCM) Call Spread; Jon Najarian Owns (LEH) Put Spreads, (STI) Put Spreads; Terranova Owns (YHOO), (AAPL), (RIMM), (SA), (VLO), (EOG), (NOV), (POT), (X), (KOL), (GS), (FCX); Terranova Owns (AIG) Puts

Terranova Is Chief Alternatives Strategist Of Phoenix Investment Partners, Ltd.; Phoenix Investment Partners Owns More Than 1% Of (ABD), (ARE), (BRE), (CNTY), (CLB), (OFC), (DLR), (ESS), (EXR), (FL), (IAT), (IGE), (LNET), (MAC), (OIIM), (PSPT), (DBC), (DBV), (SLB), (SKT), (BLV)

Terranova Is Co-Portfolio Manager Of The Phoenix Diversifier PHOLIO: Phoenix Diversifier PHOLIO Owns (IGE), (DBC), (DBV)

(AIG), (AMP), (GNW), (HIG), (MET), (PFG), (PL), (PRU) Is Or Was In Last 12 Months A Client Of Credit Suisse; Credit Suisse Provided Investment Banking Services To (AIG), (AMP), (GNW), (HIG), (MET), (PFG), (PL), (PRU) In Past 12 Months; Credit Suisse Has Managed Or Co-Managed A Public Offering Of Securites For (AIG), (AMP), (GNW), (HIG), (MET), (PFG), (PL), (PRU) In Past 12 Months; Credit Suisse Has Received Investment Banking Compensation From (AIG), (AMP), (GNW), (HIG), (MET), (PFG), (PL), (PRU) In Past 12 Months; Credit Suisse Expects To Receive/Seek Investment Banking Compensation From (AIG), (AMP), (GNW), (HIG), (MET), (PFG), (PL), (PRU) In Next 3 Months; Credit Suisse Has Received Non-Investment Banking Compensation From (AIG), (AMP), (GNW), (HIG), (MET), (PFG), (PL), (PRU) In Past 12 Months

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  Price   Change %Change
DJIA
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AFF
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AMD
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FNMA
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FMCC
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GS
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HD
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HPQ
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LOW
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MS
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RMBS
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STI
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TIU1
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USB
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VIX
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WFC
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AAPL
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