HALFTIME REPORT: TWO HOT TRADES MAY BE OVER
The S&P 500 slipped lower on Friday after a sharp retreat in commodity prices and disappointing results from National Semiconductor led investors to book profits in energy and tech -- sectors that have recently been scorching hot.
The Reuters/University of Michigan Surveys of Consumers added to the downward momentum after results showed consumers were worried about inflation and labor market uncertainty.
With money rotating out of tech and energy, how should you be positioned?
Instant Insights from the Fast Money desk
It seems to me that over the past several weeks money managers have piled into the resource and energy names not wanting to miss the next leg higher, explains Fast Money trader Joe Terranova. However, now the space is very crowded. As a result, I believe it’s time to get flat.
I think the pause in the market is a typical Friday pause, counters Zach Karabell. It’s a summer week-end and I expect to see a lot of pauses like this one on Fridays.
To me it's all about the dollar , adds Jim Iurio of TJM, which has stalled. That’s why I think the market is paused.
I’m looking for the DXY to test it’s 200-day moving average, says Katie Stockton of MKM, and that’s where I’d sell it. And on the S&P resistance is right around 944.
BANKS INCHING HIGHER
Investors are hopeful that the financials may begin climbing next week as banks such as JPMorgan and Goldman Sachs begin to repay TARP money and get out from underneath the thumb of the government.
Meanwhile, analysts at Bank of America -Merrill Lynch Research said repayment of federal funds by Goldman Sachs, JPMorgan and Morgan Stanley will force a reversal of value for the remaining warrants – and as a result -- they cut second-quarter profit estimates.
Company Name New Estimate Old Estimate
Goldman Sachs $2.92 $3.59
Morgan Stanley $0.23 $0.70
JPMorgan $0.01 $0.30
How should you trade bank stocks?
I would be careful in the space, says Zach Karabell. These stocks have run a lot and it’s not entirely clear why.
Also, Bank of America shares popped after Stifel Nicolaus raised its price target on the stock by to $22 and said BAC should repay all federal bailout money by early 2010.
Over the short-term we’re seeing a breakout in BAC, explains Katie Stockton. That suggests it could test its 200-day moving average around $14.70. That’s the level where I’d be a seller to avoid a short term correction back to it’s 50-day moving average.
It seems to me the larger banks trade petered out a few weeks ago, muses Joe Terranova.
CHART OF THE DAY: IYT
Technical analyst Katie Stockton says patterns in the chart of the iShares Dow Jones Transport. Avg. ETF appear bullish. Specifically, she’s spotted the tell-tale inverse head and shoulder pattern and says the ETF could outperform on a pullback in crude.
And she says the railroads look best in the transportation sector.
TRANSPORTS IN FOCUS
The traders are closely watching two notable upgrades Friday from Morgan Stanley.
Analysts upgraded Burlington Northern to equal-weight and said there is better growth opportunity in the rails than other areas of transportation. They also upgraded rival CSX which they called the cheapest rail stock of the group.
Should you hop on board?
These analysts are looking at the macro environment, explains OptionMonster Pete Najarian. For example, steel and coal have been upgraded by Goldman, and now Morgan is raising their outlook on railroads. It’s all because they believe that at some point demand will return.
I agree with that. As a result I’d put both BNI and CSX on your radar – but I don’t think you have to jump in today.
TRADE TO GO: HEALTHCARE/BIOTECH
Joe Terranova suggests putting Abbott Labs on your radar. It’s performing very well and I like the valuations. Or look at the XBI , he says, to spread out your risk.
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Trader disclosure: On June 12th, 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 (AGU), (USO), (BAC); Najarian Owns (FCX) Call Spread; Najarian Owns (MCD) Calls; Najarian Owns (RCL) Calls; Adami Owns (AGU), (BTU), (GS), (INTC), (MSFT), (NUE), (BTU); Terranova Owns (TER), (XBI), (SDS), (BTU), (RIMM); Terranova Owns (X) And Is Short (X) Calls; Terranova Owns (MS) And Is Short (MS) Calls; Terranova Owns (JPM) And Is Short (JPM) Calls; Terranova Owns (POT) And Is Short (POT) Calls; Terranova Owns (BRCM) And Is Short (BRCM) Calls; Terranova Owns (IBM) And Is Short (IBM) Calls; Terranova Owns (HES) And Is Short (HES) Calls; Terranova Owns (GENZ) And Is Short (GENZ) Calls; Terranova Is Short (OIH); Terranova Is Short (RIG); Terranova Is Short (XOM) Call Spreads; Terranova Owns (DIS) Call Spreads; Terranova Is Short Aug. Nymex Crude Oil; Terranova Is Short September Nymex Crude Oil; Terranova Is Short December Nymex Crude Oil; Terranova Owns December 2011 Nymex Crude Oil; Terranova Is Short August Gold Futures; Terranova Is Short July Natural Gas Futures
Terranova Works For (VRTS); Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.; Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV); Virtus Investment Partners Owns More Than 1% Of (ABD), (CAL), (CLB), (DLR), (EPR), (EXR), (IGE), (MEE), (DBC), (DBV), (DBA), (SKT), (UA), (WBMD); Virtus Investment Partners Owns More Than 1% Of St Mary Land & Exploration Co; Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights
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