S&P 500 FALLS FOR 3RD DAY
A gloomy sales report dragged down investor sentiment on Wednesday sending the S&P 500 to its third straight day of declines. This is now the longest slump in stocks since optimism about banks triggered a sharp rally in March. Nonetheless, the S&P is still up 31% since its bear market low.
Is the market action a signal to sell or a second chance to buy?
Strategy Session with the Fast Money Traders
Retail sales were weak? No kidding, says Jeff Macke sarcastically. Sometimes a market sells off because there are no more reasons to buy. After the run in financials and tech I see no bullish catalysts.
I think the S&P drops to the key technical level of 875, muses Guy Adami. If and when that happens I’ll be watching to see how stocks react. It could be dicey.
I agree that if the S&P can’t hold 870 there could be a big air pocket beneath it, adds Tim Seymour.
What do you think?
BANK OF AMERICA LEADS SECTOR LOWER
Shares of Bank of America tumbled on Wednesday after the firm said it would sell up to $1.25 billion shares of common stock and issue more debt. It seems the spate of secondary share offerings announced after the stress test results have given the market pause.
Typically secondaries will pinpoint the low for a stock but these days it pinpoints the high, muses Guy Adami. It seems to me investors were giddy last week. Now stocks are performing as they should.
As far as I’m concerned the banks are a short until further notice, adds Jeff Macke.
Don’t paint all banks with one brush, counters Dan Cortes of Veracruz. Citi may be a broken company but I like some names in the sector such as Goldman Sachs.
TECH CRUNCH CONTINUES
Weakness in technology dragged down the Nasdaq with Apple being a major weight on the index.
Meanwhile tech investors were trying to get a handle on Intel .
On the positive side, CEO Paul Otellini suggested the coming quarter could be better than expected. But on the negative side, Intel faces a massive fine of $1.45 billion after the EU said its sales tactics that may have shut out rival AMD. Intel plans to appeal the decision,
In fact, Otellini tells CNBC, "We believe that all the evidence was not reviewed or even included into the case and as a result we will appeal and we feel we will be exonerated on appeal."
Intel has traded down to $15 and bounced 5 times, explains Guy Adami. If it continues to hold $15 you’ve got to take it very seriously. And in the space I also like IBM – it should be a $120 stock. Around $98 it’s a buy.
I agree that IBM is best of breed but the sell-off just got started, adds Jeff Macke. There’s no need to rush in.
I think tech is at a dangerous intersection, counters Steve Cortes. As of last week it started losing leadership versus the S&P. I think there’s a lot of money in the sector that’s extremely vulnerable. I’d steer clear.
OIL ROLLS OVER AFTER HITTING $60
U.S. crude futures ended lower on Wednesday as demand worries resurfaced, trumping government inventory data showing a surprise steep drawdown in domestic crude stocks last week. The loss follows Tuesday's leap to six-month highs.
The move in crude looks like a classic reversal, adds Guy Adami. It scares me at these levels.
I see value in crude, counters Steve Cortes. The fact that it traded as well as it did with the S&P down 3% is a good ‘tell.’ I’d rotate out of tech and into resource names.
Across the integrated space I’d keep an eye on Petrobras , counsels Tim Seymour. They seem well positioned to me.
TOPPING THE TAPE: BIG PHARMA
Shares of Big Pharma firms including Merck and Pfizer closed higher for the second consecutive day as investors rotate out of financials and technology and into these perceived defensive names.
Abbott Labs is my pick in the space, counsels Guy Adami. Their main drugs don’t come off patent until 2017.
I think Pharma stocks are some of the worst stocks out there, bristles Jeff macke. I’d ignore these stocks.
INVESTORS CASHING OUT OF CASINOS
Shares of MGM plunged on Wednesday after the casino said it will raise up to $2.5 billion by selling new stock and bonds.
MGM said it would privately place $1.5 billion worth of senior secured notes and aimed to raise about $1 billion in a public offering of 81 million shares. It plans to use the proceeds to pay off more than $1 billion of debt that matures later this year and at least $750 million of a credit line.
The new offering would increase the company's share count by 29 percent, according to Goldman Sachs analyst Steven Kent.
"This offering of shares is very dilutive for existing shareholders," says Majestic Research analyst Matthew Jacob.
They’re not bad operators, adds Standard &Poor’s casino analyst Esther Kwon, it’s just they loaded themselves up with debt. The real negative is their huge exposure to the Las Vegas market.
In case you’re wondering Kwon has a ‘hold’ on MGM.
MGM Mirage, which is controlled by billionaire Kirk Kerkorian, said the senior notes would be secured by a lien on substantially all of the assets of its Bellagio Hotel and Casino and the Mirage, both on the Las Vegas Strip.
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Trader disclosure: On May 13th, 2009, 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 (F), (WFC), (HRS), (TGT), (WFC), (SKF), (SDS); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Seymour Owns (AAPL), (BAC), (BX), (EEM), (FXI), (PBR), (TSL), (TSO); Seymour Is Short (NUE); Cortes Owns The Yen; Cortes Owns (GS)
GE Is The Parent Company Of NBC Universal and CNBC Is A Subsidiary Of NBC
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