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Both the Dow[.DJIA
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] and S&P 500[.SPX
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] tumbled Monday, marking their worst slide in a month after regional manufacturing data dragged down investor sentiment.
Economists had expected to see slight improvement in the New York Fed's Empire State index, but the survey showed the factory sector shrank at a much more severe rate in June than the previous month.
Also, a stronger dollar dragged down commodity prices, which in turn pulled down the energy sector [XLE
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] and the materials space [XLB
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].
"The bottom line is investors were starting to factor in a V-shaped recovery to the economy," says Alan Lancz, president of Alan B. Lancz & Associates. "If we don't get that V-shaped recovery, then (we may have) more than just a temporary pullback."
How should you be positioned?
Strategy Session with the Fast Money traders
I don’t think this is a case of buy the dip, counsels Guy Adami. Instead, I think the market is saying the next move is lower – as much as 8% - 10% lower, he muses.
I’d take risk off the table, advises Joe Terranova. But I would not short the resource names. Instead, I’d be flat.
I’d also take profits off the table, adds Tim Seymour. This is a very technical market and we’ve failed many times with the S&P [.SPX
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] around 950.
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VOLATILITY INDEX SURGES 9%
The CBOE Volatility Index, known as Wall Street's fear gauge, closed above the 30 level for the first time since early June, suggesting more turmoil could be in store. The VIX[VIX
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] jumped 9.5 percent to end at 30.81.
It seems to me volatility will remain in this market for a while, speculates Pete Najarian.
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THE SELLOFF: BANKS FALL
Details of the Wall Street overhaul spooked investors on Monday. According to a report in the Washington Post, the Obama administration clearly intends to give the Fed more power and create a new way for the federal government to handle troubled firms whose failure could pose a risk to the economy.
Full details of the overhaul will be made public on Wednesday.
What’s the bank trade?
I think these new regulations are just one of many reasons to be cautious on financials, counsels Guy Adami. The best is probably over for the next few weeks. If you’re an aggressive trader I think you can short JPMorgan[JPM
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]. Technical trends suggest more room on the downside.
If you’re looking for a trade from the longside, I still like Goldman Sachs[GS
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] and Morgan Stanley[MS
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], adds Pete Najarian.
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Meanwhile, shares of Bank of America[BAC
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] led the financials lower on Monday after a report from widely followed analyst Dick Bove said BAC is experiencing "horrific" loan losses and may set aside $46 billion in loan loss provisions this year.
"In the second quarter, (Bank of America's) position as the largest lender in multiple sectors of the American financial system will haunt the company as its losses expand," Bove added.
However, Bove’s analysis wasn’t entirely negative.
He also said the price-earnings multiple on the stock would likely rise as confidence in the company and its management improve and he continues to rate the stock "buy." Bove also raised raised his target on the stock by $5 to $19.
In addition Bove said it was becoming increasingly clear that Bank of America's acquisition of Countrywide and Merrill Lynch had been good for the company.
Guy Adami doesn’t quite see it that way. I don’t agree that Bank of America is a raging buy, says Adami.
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THE SELLOFF: HOUSING
Investors clobbered the housing sector [XHB
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] after a private survey showed U.S. homebuilder sentiment slipped in June with higher mortgage rates and an ongoing credit crunch dampening expectations for the sector.
I expect to see Hovnanian[HOV
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], Toll Brothers[TOL
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] and other homebuilders continue to post losses, speculates Joe Terranova. I wouldn’t touch the space.
I think a winner could be Home Depot[HD
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], counters Guy Adami. People are saving more but not moving and some of that money could go into improvements.
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THE SELLOFF: INDUSTRIALS CLOBBERED
As we said above, results of a regional manufacturing survey dragged down industrials on Monday.
Economists had expected to see slight improvement in the New York Fed's Empire State index, but the survey showed the factory sector shrank at a much more severe rate in June than the previous month.
I’m cautious, reminds Joe Terranova. I just don’t see a catalyst to take the sector higher right now.
Me too, adds Guy Adami. Caterpillar[CAT
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] probably trades lower form here.
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IS THIS BULL CYCLICAL OR SECULAR?
According to reports in the Wall Street Journal this rally may just be a blip in a larger bear market.
The paper says, “In late 2001, Ned Davis Research, a market analysis and money-management firm, raised the idea that stocks had entered a secular bear market, a long period of flat or declining stocks. That idea gained traction last autumn as stocks fell below levels of a decade ago.”
“These "secular" cycles run for long periods; secular bull markets have lasted from six to 24 years and bear markets 13 to 16 years.”
“Within those cycles are many more cyclical bulls and bears -- nearly three dozen of each since 1900. (Ned Davis uses its own criteria for a cyclical bull or bear market, based largely on 30% moves.)”
For further insights we turned to Storehouse Partners founder Patty Edwards. She told the Fast Money desk that the market probably can't sustain the recent rally. What does she see going forward?
Find out now -- watch the video now!
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Trader disclosure: On June 15th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (BTU), (MSFT), (NUE); Seymour Owns (AA), (BAC), (BX), (EEM), (FXI), (TTM); Seymour's Firm Owns (NOK); Seymour's Firm Owns (TKC); Najarian Owns (BX) Call Spread; Najarian Owns (FCX) Calls & Put Spread; Najarian Owns (GE) Calls; Najarian Owns (INTC) Call Spread; Najarian Owns (MOS) Put Spread; Najarian Owns (PALM) Calls; Najarian Owns (WNR); Najarian Owns (S) Calls; Terranova Owns (TER), (SDS), (ABT); Terranova Owns (RIMM) & Short (RIMM) Calls; Terranova Is Short (RIG); Terranova Owns (BRCM) & Short (BRCM) Calls; Terranova Owns (MS) & Short (MS) Calls; Terranova Is Short (FCX); Terranova Owns (GENZ) & Short (GENZ) Calls; Terranova Owns (HES) & Short (HES) Calls; Terranova Is Short (XOM) Call Spread; Terranova Owns (DIS) Call Spread; Terranova Owns (X) & Short (X) Calls; Terranova Owns (JPM) & Short (JPM) Calls; Terranova Owns (BTU) & Short (BTU) Calls; Terranova Is Short August Gold Futures; Terranova Owns (POT) & Short (POT) Calls; Terranova Is Short Septmeber Oil Futures; Terranova Owns December Oil Futures; Terranova Owns August Nat Gas Futures; Terranova Owns (IBM) & Short (IBM) Calls; Terranova Is Short (OIH) & (OIH) Calls
Patricia Edwards Owns Wal-Mart (WMT) and Costco (COST)
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