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Has Commodity Bubble Popped?

Tuesday, 2 Sep 2008 | 5:50 PM ET

STOCKS GIVE UP GAINS

The Dow fell on Tuesday, despite a steep decline in the price of oil. Investors hammered energy and materials companies while tech shares fell amid jitters over a global economic slowdown.


OIL PLUNGES AFTER GUSTAV PASSES

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



The news: A plunge in crude prices on Tuesday tempered global inflation fears and drove the U.S. dollar to its highest level in 10 months. Commodities like corn and cotton fell in tandem with oil while gold slid under $800 an ounce and copper, another key commodity indicator, hit 7-month lows in U.S. futures trade.

The plays: This is a bear market, says Jeff Macke. There’s one trade that’s worked all year and that’s sell.

And know your entry and exit points, add Pete Najarian. That’s very important in this environment.

Stay with what works, exclaims Guy Adami. I like Johnson & Johnson and Church & Dwight .


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HAS THE COMMODITY BUBBLE POPPED?

The news: Corn futures fell over 3 percent to their lowest levels in two weeks on Tuesday, as a $4 plunge in oil prices pushed the dollar to 2008 highs, triggering a broad sell-off in commodities.

The sell-off in turn hurt shares of major U.S. coal producers on Tuesday sending Arch Coal, Peabody Energy and Consol Energy all lower.

Also gold slid under $800 an ounce and copper, another key commodity indicator, hit 7-month lows in U.S. futures trade.

What’s going on?

“The game has changed for the dollar and since the game has changed for the dollar it has changed for the commodity markets … all of them,” says strategic investor Dennis Gartman on Fast Money.

”The game changed two months ago when US Steel began to falter and then it was made all the clearer when the fertilizer stocks began to follow. The collapse of crude oil and nat-gas is not the precursor of commodity market weakness; rather it is merely symptomatic. The energy markets are simply following the lead that steel and fertilizer set up.”

”If the US dollar is now embarking upon a multi-year bull move, we may well be surprised how far the dollar could run. Is 1.2500 vs. the EUR out of the question? Of course not; indeed, that might only be a year or so away,” he says.

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DOW'S BEST: GM

The news: Despite saying August was a tough month, shares of General Motors jumped on Tuesday; the automaker was the best performing stock in the Dow.

The plays: I can’t imagine how it gets worse for General Motors, says Jeff Macke. I would not get short GM. It seems like a stock that can work for a trade if you can catch it.

As a trade the airlines have been a great proxy for oil, adds Pete Najarian

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HOUSING MARKET STABILIZING?

The news: Housing-related stocks jumped Tuesday due to oil’s march lower. Meanwhile Goldman Sachs upgraded Lowe's to "buy" from "neutral," citing in part a stabilizing housing market.

The plays: Home Depot was up big on Tuesday, adds Guy Adami. I’d buy it on a dip.

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CHART OF THE DAY: TOLL BROTHERS

The news: Shares of Toll Brothers reached a 52-week high on growing speculation that housing might have bottomed.

The plays: There are people who believe the rate of decline won’t be getting worse, explains Karen Finerman. However, I’m a little skeptical. If you must play the space look at MDC or Centex because they have strong balance sheets.


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SEPTEMBER GOOD FOR WALL STREET?

The news: Shares of Lehman closed higher after state owned Korea Development Bank confirmed market rumors that it is, in fact, in talks to buy a stake in Lehman.

The plays: The real high-risk trade is to go out and get short Lehman, says Guy Adami. No one really knows what’s going to happen here.

The financial services names that continue to impress me are Charles Schwab and TD Ameritrade, says Pete Najarian. They seem to have avoided a lot of the headaches that the marquis investment banks have suffered.

Read More:

> Major Commodities Fund Closes, In Blow to Lehman


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TECH RALLY FAILS

The news: Nagging worries that tech companies will suffer if the global economy continues to slow, sent shares of Apple, RIMM and Dell lower.

The plays: I bought some Apple calls on Tuesday, says Karen Finerman. I think they could see some strength in the back-to-school season.

In the space look at AMD , counsels Guy Adami. I don’t like the stock but something is going on. I think it goes to a 7-handle.


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OPTIONS ACTION: LEXMARK

The news: Pete Najarian is seeing unusual options activity in printer-maker Lexmark .

The plays: The volume in the September-40 calls suggests that this stock could go higher, says Najarian.


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BOEING’S LABOR PAINS

The news:Boeing's largest labor union is threatening to go forward with a strike on Wednesday that could cost the plane maker $3 billion a month.

The plays: It could really throw a wrench into the Dreamliner plans, says Karen Fienrman. I’m hoping they reach an agreement.

I think they will go on strike, counters Guy Adami. Or at least not accept Boeing’s latest offer.





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Trader disclosure: On Aug 28, 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 (WMT), (MSFT), (UUP); Macke Is Short (TM); Najarian Owns (ETFC); Najarian Owns (LEH) Put Spread, (LMT) Put Spread; Najarian Owns (SCHW) Call Spread, (LEH) Call Spread; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (AAPL) And An (AAPL) Collar; Najarian Owns (XLF) And An (XLF) Collar; Adami Owns (C), (GS), (INTC), (AGU), (MSFT), (NUE), (BTU); Finerman Owns (GS); Finerman's Firm And Finerman Own (KALU); Finerman's Firm Owns (MSFT), (SUN), (VLO), (TSO); Finerman's Firm Is Short (BA); Finerman's Firm Owns (AAPL) Calls, (JCG) Calls; Finerman's Firm And Finerman Own (C) Leaps; Finerman's Firm Is Short (IYR), (IJR), (SPY), (IWM), (MDY)

Gartman Owns (SJT), (UNH), (QCOM), (TRLG), (CSCO), (AAPL), (SU), (PBR), (MCD), (SDS), Gartman Owns (ANDE) And Is Short (ADM); Gartman Is Short (TAP), (GS), (GRMN), (UYG), (GOOG), (POT)

CIBC Gartman Index Is Short Crude Oil And Is Long Natural Gas; CIBC Gartman Index Is Short Sugar; CIBC Gartman Index Is Long Grains

Charles Schwab Is A Sponsor Of "Fast Money"

  Price   Change %Change
DJIA
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ACI
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AMD
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AMTD
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BTU
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CHD
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CNX
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CTXS
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4331
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GM
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HD
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JNJ
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LOW
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LXK
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MDC
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BB
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SCHW
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TOL
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X
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SPDR SP HB
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AAPL
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BA
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  • Guy Adami is a contributor on CNBC's "Fast Money." He also is managing director of stockMONSTER.com.

  • Najarian, the "Pit Boss," is cofounder of optionMONSTER.com, a news site for options traders.

  • Finerman is president of Metropolitan Capital Advisors, Inc., a company she co-founded.

  • Founder of EmergingMoney.com

  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

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