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Investors struggled with yet another day of meaningful losses in the Dow [.DJIA Loading... ()
]. The market is still trying to figure out the long term impact of the credit crisis with Wall Street pondering how many jobs will be lost, how many things will not be sold and how deep will the recession be.Other factors also drove stocks lower including hedge fund redemptions and continued anxiety in the commercial paper market.
Traders, how did you navigate the day?
I came in long the S&P [SPY
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] and sold out of that position today, reveals Joe Terranova. Also I sold straddles in oil.
I bought the ProShares UltraShort S&P500 ETF [SDS
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], adds Jeff Macke. That’s short the S&P 500 and it goes higher as the market goes lower. I think’s it’s a particularly good trade if the short-sell ban is extended. But the stock market in general is a dangerous game because the government keeps changing the rules.
You can make a great case for a lot of companies such as Freeport McMoRan [FCX
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] or Alcoa [AA
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]on a valuation basis but it doesn’t matter because people are forced to sell, adds Guy Adami.
And it’s entirely possible that the market could be setting up for one of those rip your face off 1,000 point rallies, he adds.
I expect to see a massive capitulation sell-off followed by a huge rally, adds Terranova.
If there’s a rally I strongly recommend taking profits, counsels Pete Najarian.
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WHAT'S WRONG WITH MORGAN STANLEY?
A $9 billion deal between Morgan Stanley [MS
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] and Mitsubishi UFJ Financial Group under which the Japanese bank would acquire a stake in Morgan Stanley is on track to close this weekend, the U.S. firm has told CNBC.
Earlier Tuesday, a rumor that Mitsubishi UFJ was pulling out the deal sent Morgan Stanley's shares down as much as 35 percent.
Under terms of the deal, Mitsubishi UFJ would buy 9.9 percent of Morgan Stanley's common stock for $25.25 a share, or $3 billion, plus a perpetual non-cumulative preferred placement at $31.25 a share, or $6 billion.
Despite the fact that the rumor was dispelled, the stock still closed significantly lower.
I think there's a lot of fear in the market, says Pete Najarian. Morgan’s slide is all about panic and people getting out.
To me it’s simple, counters Jeff Macke. Morgan Stanley gave away a huge chunk of the company at terrible rates. I would sell them too. They’re getting diluted in ways I don’t understand.
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SELL-OFF HITS MAIN STREET
Consumer names including Wal-Mart [WMT
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], Disney [DIS
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], and Nike [NKE
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] were all hammered on Tuesday as investors feared it was just a matter of time before the Wall Street crisis takes its toll on Main Street.
These names were thought to be well insulated from the economic slowdown, but nonetheless they closed lower, says Dylan Ratigan.
A lot of these stocks are held by hedge funds that are being forced to sell, reveals Guy Adami. Target [TGT
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], for example, is also widely held by hedge funds and it’s down too.
These stocks haven’t done anything wrong and still people sold them, adds Jeff Macke. It’s causes me great pain.
On a related note take a look Excel Maritime [EXM
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], says Joe Terranova. It was a $60 stock three months ago and I bought it $11, but this market makes me nervous.
The drop in Excel's share price screams global slowdown, adds Jeff Macke. There’s less shipping going on.
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WHEN WILL THE SELLING STOP?
The Treasury Department and the Federal Reserve took a major step Tuesday to support strained commercial paper markets. As speculated, the central bank said it was creating a Commercial Paper Funding Facility to buy unsecured and asset-backed commercial paper directly from eligible issuers.
Some pundits are saying this could be the final piece of the credit crisis puzzle because credit cards and auto loans will be among the financial instruments covered.
What the Fed did today really didn’t shore up the commercial paper market, says Joe Terranova. The Fed said they would lend money, short term, to corporations but didn’t say they would back the normal buyers of the funds. In other words they’re only taking care of the people who sell it, not those who buy it.
I think they’ll say that tomorrow, muses Jeff Macke. But it seems like they’re making up the rules as they go along.
I think we need to eliminate the short sale rule, says Pete Najarian. That will help this market.
Restoration of confidence takes time, adds Guy Adami. It’s like going to a bar, talking to a nice look girl and she shoots you down. It takes a while to go back in the bar. Investors are now like those guys in the back of the bar with their hands in their pockets. Afraid.
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Trader disclosure: On Oct. 7, 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); Macke Owns (UUP), (DIS), (WMT), (SDS), (MCD), (MSFT); Macke Is Short (TM); Najarian Owns (AAPL) And (AAPL) Puts; Najarian Owns (BIIB) Calls; Najarian Owns (GS) Call Spread; Najarian Owns (MS) And (MS) Puts; Najarian Owns (MTW) Call Spread; Najarian Owns (NCC) Calls; Najarian Owns (NOK) And (NOK) Calls; Najarian Owns (RF), Owns (RF) Put Spread, Is Short (RF) Calls; Najarian Owns (XLF) Call Spread
Terranova Owns (AAPL), (EOG), (EXM), (FCX), (FTO), (GS), (MA), (NOV), (POT), (X), (VLO); Terranova Owns (AIG) And (AIG) Puts; Terranova Owns (MS) And Is Short (MS) Call; Terranova Is Short Crude Oil Straddle
Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.: Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (CNW), (OFC), (DLM), (DRH), (DLR), (EPR), (EXR), (FL), (SLB), (LNET), (MAC)
, Shares Of Incitec Pivot Ltd., (DBC), (DBV), (SKT), (UA), (BLV), (VV), (CLB), (GWX), (IGE), (FSMXX); Virtus Investment Partners Owns Seagate Tax Refund Rights; Virtus Investment Partners Owns Seagate Technology Tax Refund Rights; Virtus Investment Partners Owns More Than 1% Of Shares Of Incitec Pivot Ltd.; Virtus Investment Partners Owns More Than 1% Of Shares Of Essex Property Trust Inc.
Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV)
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