HALFTIME REPORT: ENERGY BULLS IN DRIVER’S SEAT
Around lunchtime Thursday, stocks were trading modestly higher largely buoyed by a sharp rise in oil prices.
Exxon Mobil was one of the top boosts to the blue-chip Dow Jones industrial average -- after oil rose to nearly $65 per barrel on a report showing crude oil stocks fell more than expected last week.
The bullish sentiment overshadowed mixed economic data. The latest weekly jobless claims and durable goods orders suggested a stabilizing economy but new home sales data indicated ongoing weakness in the housing market.
Ultimately is higher crude a signal of global growth, or a drag on a fragile economy?
Instant Insights with the Fast Money Traders
Remember oil takes the pulse of the global community’s willingness to take risk, explains Fast Money trader Joe Terranova. So the move higher is a good thing because it means we’re okay to take risk again. But if you're looking for a 'tell' look at the price action in gasoline -- it is not participating in the rally – it’s lower on the day.
And if you’re looking for an energy trade -- I would maintain exposure to Hess , Terranova adds. I also like Peabody for exposure to nat gas.
Short term I’m looking for a pullback in oil but long-term I’m bullish, adds Jared Levy of Peak6. I’d game it by selling the USO June 36 calls and buying two October 38 calls. The play gives me a moderate short term bearish position but overall it’s bullish.
I’d be long oil stocks, counsels Dan Fitzpatrick of StockMarketMentor.com. I think they go higher. I’m looking at $65 oil.
MARKET ON EDGE OVER HIGHER YIELDS
The stock market is closely watching the results of the government auction of 7-year Treasuries Thursday afternoon.
All the debt coming onto the market -- over $100 billion this week – is pressuring both bonds and stocks.
Investors are wary that the selling spree in Treasuries will push rates significantly higher – and as a result will derail our fragile economic recovery -- and ultimately snuff the market's rally
This is a lesson why you can’t just be focused on individual stocks – but the market around you. When the yield started to go up yesterday the market really sold off hard, explains Jeff Tomasulo of SMB. That was an indication for me as a trader to get lighter.
I think we’re in an oversold condition when people just dumped Treasuries, adds OptionMonster Jon Najarian. And I don’t think that’s a condition that continues. I think that was a spike that will soon be met with buying pressure.
As a trader I look for abnormalities, says Jared Levy. When the market sells off sharply outside normal deviations I use that as an opportunity to buy.
I think the sell side is the right side, counters Dan Fitzpatrick.
FINANCIALS MOVING LED BY BAC AND JPM
Shares of big banks such as Bank of America and JPMorgan were moving higher mid-day as investors placed bets that the worst of the financial crisis is behind the larger financial institutions.
I’m seeing risk reversal in BAC, explains Jared Levy. Options investors are selling the downside puts and buying the upside calls. Synthetically it’s like getting long BAC stock at $9.80. It’s a great way to play it.
Bank Of America hit $10.50 a key level, adds Jeff Tomasulo of SMB Capital. That’s bullish.
In the financials I’m seeing large put activity in The Hartford, adds OptionMonster Jon Najarian. Either someone needs protection or they’re betting on big downside. I’m seeing big action in the June 14-puts – it suggests to me big investors are looking for the stock to pull back to $10.
TAKE YOUR POSITION: DELL AFTER BELL
Dell reports its fiscal first-quarter results after the market closes Thursday. How should you play it?
The June 11 straddle is coming in, explains Jared Levy. That says to me that traders don’t think there’s going to be a big move in this stock. If you want to be long I’d sell the June 11 put.
In the space I love HPQ and IBM, adds Jon Najarian.
BREAKING NEWS: GM
General Motors said on Thursday it had reached a deal with some major bondholders that would give them a bigger stake in a reorganized automaker and could pave the way for a fast-track bankruptcy backed by the U.S. Treasury within days.
The announcement was the clearest indication yet that GM, the No. 1 U.S. automaker, is close to filing for bankruptcy under the direction of the Obama administration. It would be the biggest-ever bankruptcy for a U.S. industrial company.
The expectation on Wall Street is that GM goes into bankruptcy on Monday, reveals CNBC’s Phil Lebeau.
The Obama administration estimates that any General Motors bankruptcy would take at least 60 to 90 days and perhaps longer, adds Lebeau. And GM probably won’t be a publicly traded company for 6-18 months.
I covered half my shorts in GM, reveals Jon Najarian. Remember existing share holders will go to zero.
In the auto space I like Borg Warner and Lear , adds Dan Fitzpatrick, but I wouldn’t be buying now because of all the uncertainty.
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Trader disclosure: On May 28th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders;
Terranova Owns (HES)
Terranova Owns Crude Futures
Tomasulo Owns (SPY)
Tomasulo Owns (RIMM)
Tomasulo Owns (AAPL)
Fitzpatrick Owns (AAPL)
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