Halftime Report: Does Vix Drop Signal S&P Pop?
Around lunchtime Tuesday traders were talking about the latest declines in the Vix. Wall Street’s fear index has now dipped below 30 for the first time since September.
Historically, when the VIX has crossed below and closed below 30, the S&P 500 has, on average, gone up 6% in the following 6 months.
How should you be trading?
There’s no doubt that big traders perceive less risk in this market, muses OptionMonster Jon Najarian. Volumes have calmed down substantially. But as a trader, I’m concerned that if too much volatility comes out, we might see a dull summer.
Yes it could mean a dull summer, echoes Jeff Tomasulo of SMB Capital. We could be trading in a range. Or it could mean we have a trended market where stocks make higher highs and higher lows over the next several months.
Don’t forget that relative to history the Vix is still high, adds Dan Fitzpatriock of StockMarketMentor.com. Just not as high as it was 6 months ago.
It’s ironic that when the Vix was in the 60’s investor were wishing for the Vix to come down, muses Fast Money trader Guy Adami. Now it is down and traders complain without volatility stocks won’t move as much.
OBAMA UNVEILS FUEL ECONOMY STANDARDS
On Tuesday, President Obama announced the most aggressive proposal for increasing auto fuel economy standards ever and the first plan for regulating emissions, the White House said.
The proposal requires the U.S. passenger vehicle fleet to average 35.5 miles per gallon by 2016, saving 1.8 billion barrels of oil. It would also instruct the Environmental Protection Agency to regulate tailpipe emissions.
If you’re looking to trade the news, look at Borg Warner, counsels Guy Adami. That’s where I think you want to be. Or you can look at Honeywell , he adds. And I like Eaton , but they have a tendency to miss.
Or check out AutoZone and O'Reilly, adds Dan Fitzpatrick.
TAKE YOUR POSITION: H-P LEADING TECH HIGHER
Shares of Hewlett-Packard led the tech sector higher on Tuesday with the computer titan due to report earnings after the bell, Tuesday.
Analysts expect a profit of 86 cents per share and sales of $27.4 billion, according to a poll by Thomson Reuters. For the full fiscal year ending in October, analysts expect $3.71 per share in profit and $113.4 billion in sales.
Will the stock pop on earnings or pull back?
I think the time to buy it was March 10th, counsels Guy Adami, when Goldman took it off the Conviction Buy list. At these levels the stock scares me. At these levels anything can happen.
I’m also concerned that this stock is a little hot ahead of the announcement, counsels Jon Najarian. It could pull back.
JPMORGAN LEADS FINANCIALS
In banking news, JPMorgan Chief Executive Jamie Dimon said the No. 2 U.S. bank expected to repay some government bailout money in a couple of weeks.
The news briefly sent bank stocks higher, but by midday they had reversed to trade near break-even and lower.
What's the trade?
I see value in JPM, but it’s a longer-term trade, counsels Guy Adami. I don’t think any of the banks are a fast money trades, anymore. I think they’re all over-extended.
I like JP Morgan on a pullback to $34, counsels Jeff Tomasulo. And I think it hits resistance around $40. Goldman is also worth a look on a pullback.
I like Regions Financial, adds Jon Najarian.
LACK OF VOLUME
Some traders including Fast Money’s Jeff Macke are keeping an eye on volume. For the 4th consecutive day trading has been on the light side and traders are concerned that any moves in the market may be quickly undone.
As far as I’m concerned the move higher in stocks has been baffling, says Jeff Macke. It’s balderdash.
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Trader disclosure: On May 19th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders;
Tomasulo Owns (GS)
Tomasulo Owns (USO)
Tomasulo Owns Oil Futures
Adami Owns (C)
Adami Owns (GS)
Adami Owns (INTC)
CNBC.com with wires