HALFTIME REPORT: BERNANKE SEES A BOTTOM
Investors are pouring over bold comments made by Fed Chairman Ben Bernanke before Congress on Tuesday. He suggested the economy is about to take a turn for the better with the recession losing steam and a housing recovery on the horizon.
Those optimistic comments, however, weren’t enough to extend further gains in stocks and by mid-day investors were clearly taking profits with both the Dow and S&P trading lower, though modestly.
What’s the recovery going to look like and how should you trade?
Instant Trading Insights from the Fast Money Crew
It seems to me that the trend in the overall market is to shrug off bad news like the swine flu and embrace good news like these Bernanke comments, muses Jeff Tomasulo of SMB Capital. If the SPDR holds above $88 I think it remains a healthy market.
Bernanke’s comments are optimistic but there's a foot note. His recovery in the economy is predicated on a recovery in the financial markets, explains Fast Money trader Jeff Macke, as well as lean inventories. The problem is you can’t have a housing bottom -- and a bottom in the rest of industrial America where inventories are lean -- because in housing you need gluts of inventory.
I think you’re totally missing the news on housing, counters technical analyst Dan Fitzpatrick. Caterpillar is bulldozing houses and that’s a meaningful sign. To me that’s a sign of a bottom.
In housing I follow the Phlx Housing Sector Index, explains Jared Levy of Peak6 Investments. Because volatility is low I like out of the money call spreads.
I’d just avoid housing all together, adds Jeff Tomasulo of SMB Capital. Instead I'd stick with the stronger sectors such as technology and financials .
FINANCIAL STRESS TESTS
Later today, U.S. regulators are expected to brief banks on the stress test findings.
Although it’s believed as many as 10 of the 19 banks tested may need to raise more capital, Chairman Bernanke suggested the money would likely come from private sources and not taxpayer dollars.
"I've looked at many of the banks and I believe that many of them will be able to meet their capital needs without further government capital through either issuance of new capital, or through conversions and exchanges, or through sale of assets and other measures that would raise capital," he said.
What’s the trade?
I think if you’re just getting in now, you’re late to the game, counsels Fast Money's Guy Adami. If you want to buy banks only look at best of breed stocks such as US Bancorp, Jefferies or Wells Fargo. But now you need to wait for a pull back. Or look at Fortress , he adds. That’s a buy at current levels.
I’d also stick with best of breed stocks, such as Goldman , adds Jared Levy of Peak6 Investments.
CHART OF THE DAY: MASSEY
Technical analyst Dan Fitzpatrick is keeping an eye on patterns in the charts of Massey Energy. He’s noticed that the stock is hitting its 200-day moving average.
As the stock falls away from it’s 200-day moving average I think we’re seeing profit taking, explains Fitzpatrick. I don’t think the run is done in Massey but in the short term investors should protect profits. I’m a seller.
And I’m interested in seeing if this is a pattern. That is, if a stock rallies hard to the upside, then hits a key technical level and then selling follows.
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CNBC.com with wires