Traders expected a hard sell-off on Tuesday, but the bulls fought hard to hold their ground.
A weaker dollar initially lifted sentiment as higher oil prices generated a tailwind for the energy sector and companies such as ConocoPhillips.
However higher crude also means higher gasoline prices and investors consider that problematic for consumers and the economy -- prices at the pump have now climbed 49 days in a row.
By 1:30pm ET buyers were clearly backing away from stocks . How should you be positioned?
Instant Insights with the Fast Money traders
The SPDRs closed below 93 on Monday, explains Jeff Tomasulo of SMB Capital. It seems the bears have taken control of the market so I’m cautious and I’d look to short weaker stocks. Personally I’m short Goldman Sachs.
It seems to me resistance is holding on the S&P, explains Dan Fitzpatrick of StockMarketMentor.com. Short term it seems the market goes lower but generally we’re grinding in a range. Buyers are backing away – but that’s not to say sellers are jumping in.
OIL HITS AN 8-MO. HIGH
Oil rose nearly 2 percent on Tuesday (before giving back gains) due to weakness in the dollar and a rebound in housing starts, which lifted hopes that the economy may be stabilizing.
"This is largely a dollar play, although the housing and producer prices data seemed to signal more green shoots," explains Phil Flynn, analyst at Alaron Trading.
A weaker dollar can strengthen commodity markets by improving the purchasing power of buyers using other currencies.
It seems to me the trend in oil is higher but it’s not going to be in a straight line, counsels Zach Karabell of RiverTwice. I see demand for oil coming out of Asia and summer driving in the US should increase demand. Oil could go to $85.
If the dollar dancing back and forth above it’s 200-day moving average holds onto its gains then I think we’ll see crude oil trade back down to the $60’s, speculates OptionMonster Jon Najarian. If that happens, I’d look at smaller cap oil names – those under $5 billion market cap such as PetroHawk – those names are a buy on the dip.
RAILS CHUGGING TODAY
Shares of Burlington Northern and CSX were trading higher on Tuesday around lunchtime as investors bet on the railroads as early beneficiaries of an economic recovery.
I think investors can buy the dips, counsels Dan Fitzpatrick. I think there’s room to the upside in BNI with little downside at current levels.
Rails ship coal, reminds Jon Najarian. And I think coal is the reason to focus on these names. If oil and gas goes higher demand for coal should increase as a less expensive alternative.
TECH TRADE WORKING TODAY
Technology shares also rose on Tuesday, with Research In Motion among the Nasdaq's top boosts after the company introduced the newest BlackBerry smartphone and at least two brokerages raised their target on the stock.
Meanwhile Jefferies raised its price target on Microsoft to $26 from $22 and recommended buying shares of the world's largest software company ahead of a possibly large, rapid corporate PC upgrade cycle starting in late 2010.
It seems to me the move in tech is all about asset allocation, muses Joe Terranova – in essence hiding out. I’d be long tech names and long the SDSagainst it.
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CNBC.com with wires