RATINGS FEARS ROCK MARKETS
The Dow closed lower on Thursday largely due to word that S&P had threatened to strip Great Britain of its triple-A credit rating. The move heightened fears that the United States, with its increasing budget deficit and weakened economy, could face a similar fate.
The market action was unusual in that the sell-off in U.S. stocks did not produce a flight to assets typically considered havens in a storm -- notably the U.S. dollar and the U.S. government bond market. Instead, those markets also weakened for similar reasons.
What should you expect, next?
Strategy Session with the Fast Money Traders
I think the stock market move was really pegged to government data, which showed further weakness in the job market, explains Tim Seymour. Also a disappointing regional Fed survey showed manufacturing conditions contracted in May for the eighth straight month
We told you on Fast Money that the volatility got too cheap, reminds Pete Najarian. And where’s the Vix now? It’s higher.
It seems to me this is a market that’s consolidating, muses Joe Terranova. I have no expectation that stocks will surge higher but I also don’t expect a sharp move lower, either. And as for the UK downgrade, S&P is typically late to the game.
It seems to me the funeral was cancelled, and now it’s back on, chuckles Steve Grasso of Stuart Frankel. I think the bottom line is this – as long as we don’t drift below the technically important 850 level on the S&P , stocks can still go higher.
GOLD AT HIGHEST IN ALMOST 2 MONTHS
Gold rose for the third straight day to hit a new eight-week high above $942 per ounce on Thursday, buoyed by firmness in oil and the dollar's recent slide to its lowest level in nearly five months.
It seems to me the reflation trade is on and gold should keep going up, says Tim Seymour.
I think the move in gold is hedge funds taking large positions, counters Steve Grasso and it could be a big bubble just waiting to burst.
OIL, COMMODITIES DRIVE THE SELL-OFF
U.S. crude oil futures closed lower but off their lowest levels of the day as the dollar shifted lower and as news of a temporary shutdown of an oil port caused some supply jitters.
Crude futures earlier fell more than $2 on profit-taking after prices shot up to a six-month high above $62 on Wednesday. However "The $60 technical support area held and so crude futures have not fallen more deeply, explains Phil Flynn, analyst at Alaron Trading.
What's the oil trade?
In the space, if you’re looking for a trade, look at ConocoPhillips . counsels Tim Seymour.
And keep your eye on BP , adds Pete Najarian.
I like Petrobras, Occidental Petroleum and Suncor, adds Steve Grasso. If oil goes higher those stocks should go higher, too.
Meanwhile, natural gas futures fell the most in almost two years after a government report showed a bigger-than- forecast increase in U.S. inventories, as the recession cut demand for the industrial fuel.
Nat gas will never move in a straight line, muses Pete Najarian., But nat gas should ultimately go higher.
REGIONALS WEIGH ON FINANCIALS
Regional banks weighed down the financial services sector with shares of Fifth Third and Regions posting substantial losses likely due to concerns about their exposure to commercial real estate.
If you look at their books of loans, the regional banks still have about 55% of their books allocated to commercial real estate, says Joe Terranova. In other words, the regionals still have to mark down losses while the large banks appear to have already done so. I’d short the KRE and get long the KCE against it.
AFTER HOURS ACTION: THE GAP
Gap reported that its first-quarter profit fell almost 14 percent as the apparel chain faces sluggish consumer demand during the recession, but the results narrowly beat estimates sending shares modestly higher in the after market.
In this market it’s hard not to beat analyst estimates, reminds Steve Grasso.
I like this stock, counters Tim Seymour. I’m a buyer.
Options action suggests to me that institutional investors are looking for a move to the upside in this stock – but out to December.
TOPPING THE TAPE: EXCHANGES
Exchange stocks such as CME and NYSE bucked the tape and closed higher with investors likely betting they could benefit from increased volumes due to market volatility.
I like the NYX as well as the ICE which seems best positioned to profit from increased regulation of the CDS market, counsels Steve Grasso. And it's a rumored takeover target.
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Trader disclosure: On May 21st, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (APC) Call Spread; Najarian Owns (BX) Calls; Najarian Owns (INTC) Calls; Najarian Owns (ISIS); Najarian Owns (MOS) Call Spread; Najarian OWns (XHB) Call Spread; Najarian Owns (XLB) Call Spread; Najarian Owns (XLU) Call Spread; Najarian Owns (BP) Call Spread; Terranova Owns (GENZ), (ABI), (JOYG), (XBI), (TER); Terranova Owns Oil Futures; Terranova Owns Nat Gas Futures; Terranova Owns (DIS) Calls; (XOM) Calls; Terranova Owns June Gold Futures; Grasso Owns (NYX), (XLF), (RIMM), (V); Grassso's Clients Owns (PETM); Grasso's Firm Owns (WMT); Grasso's Client Owns (SUN); Grasso Owns (NYX); Seymour Owns (AAPL), (BBT), (BX), (EEM), (FLR), (TTM), (INFY), (MGM), (PBR); Seymour is Short (FCX), (POT)
Stuart Frankel Clients Own (JPM), (MA), (V)
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