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Halftime Report: Will Oil's Collapse Derail This Rally?

HALFTIME REPORT: WILL OIL’S COLLAPSE DERAIL THIS RALLY?

The Dow and S&P 500 were both trading in negative territory mid-day after the price of crude oil plunged lower on Wednesday.

Chevron and Valero were among the worst performing stocks in the sector; with the latter tumbling after it said it would post a second-quarter loss due to weak market conditions and indefinitely delay two expansion projects

Bearish sentiment also stemmed from a government report which showed crude oil inventories rose unexpectedly last week. Investors are now concerned that the current state of world economies can’t support oil much above $60.

Will oil’s collapse derail this rally?

Instant Insights from the Fast Money Traders

Last week we saw $68 was a point of resistance for crude, explains Jeff Tomasulo of SMB. However, if oil pullsback to $60 I’d be a buyer.

We’re seeing the lowest demand for oil since 1999, counters Lucas Rosen of The Schottenfeld Group. That’s ten years! I think if you’re long energy stocks you have to wonder what’s priced in.

Fundamentals don’t support $68 crude, muses Option Monster Jon Najarian. I don’t even think they support $60 and I expect we test that level rather quickly. As for refiners I’m seeing a lot of unusual options action in Valero and Western Refining; investors are bullish -- speculating on the call side. I think you can buy both of these on the dips.

I disagree with Jon, counters Rosen. Higher efficiency cars and less driving are negative for crack spreads. And you need strong crack spreads to make money in the refiners. I wouldn’t want to be anywhere near them.

Don’t forget there’s a strong seasonal play in oil, reminds John Kosar of Asbury Research. Seasonally we expect a pull back this time of year.

I think it’s time to move to the sidelines in crude oil, muses Fast Money trader Joe Terranova. The value of the dollar is very strong right now and that’s what I think is behind the move in oil. Investors had put on the reflation trade and now they’re unwinding it.

Personally, I’ve flattened out my exposure to Hess and BP and I’m short some oil futures, Terranova reveals.

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TOPPING THE TAPE: APPLE

Collins Stewart on Wednesday upgraded Apple to buy from hold, and raised its price target to $170. They said the tech company remained "in pole position to monetize the revenue opportunity for mobile Internet devices."

I think there’s a lot to be said for the halo effect that continues to generate sales, muses OptionMonster Jon Najarian. But I think the stock is a little ahead of itself. I’d take profits ahead of the world wide developers conference.

Apple has shown resistance around $141, adds Jeff Tomasulo. Watch that level.

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AETNA, INSURERS GETTING POUNDED

Investors hammered shares of Aetna after Credit Suisse downgraded the stock to ‘Underperform’ from ‘Neutral’ citing increasing costs.

I don’t think this is an opportunity to get in, says John Kosar. I would wait for a pullback. Maybe in a month of so, take another look.

I don’t see any reason to jump in either, concurs Jon Najarian. I’d give insurance stocks another 5%-10% to the downside.

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TRADE TO GO

Jeff Tomasulo suggests looking at a fast food play. My fast money trade is long McDonald’s, he says, I think it goes to $64.


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Trader disclosure: On June 3rd, 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 (AAPL)
Tomasulo Owns (RIMM)
Tomasulo Owns Oil Futures
Tomasulo Owns Gold Futures
Tomasulo Owns (MCD)

Rosen Is Short Baltic Dry Index

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