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Financials [XLF
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] weighed down the Dow [.DJIA
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] and S&P [.SPX
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] on Wednesday, largely due to the uncertainty surrounding the new regulations introduced by Barack Obama designed to clamp down on Wall Street.
The proposals are headed next for debate in the Congress and include closing one bank regulator and creating government watchdogs to prevent excessive risk-taking.
How should you position yourself?
Strategy Session with the Fast Money Traders
I think the market now trends lower, muses Guy Adami. I see investors looking to buy dips but I don’t think that’s the right play.
I think the market is hanging in there, counters Tim Seymour. The market has digested a ton of uncertainty. I’m cautious but we haven’t traded out of the channel yet.
I’m positive on the late day action, adds Joe Terranova. But clearly for the first time in weeks the market is on the defensive.
I think you can use these short-term pullbacks as buying opportunities if you’re a short term trader, adds Jon Najarian. But if you’re a long-term investor I’d wait. I’m looking for a 5%-10% correction.
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S&P DOWNGRADES
On Wednesday, Standard & Poor's cut ratings on 18 banks including BB&T Corp[BBT
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], Capital One [COF
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], Regions Financial [RF
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] and Wells Fargo [WFC
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].
Five companies were cut to "junk" status, including Huntington Bancshares [HBAN
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] and Synovus Financial [SNV
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].
"The banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions," S&P analyst Rodrigo Quintanilla wrote.
"Financial institutions are now shedding balance sheet risk and altering funding profiles and strategies for the marketplace's new reality. Such a transition period justifies lower ratings."
What’s the bank trade?
I think you can still short JPMorgan [JPM
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], counsels Guy Adami, but with a very tight stop.
I think Wells Fargo [WFC
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] goes down to $20, adds Jon Najarian.
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DEFLATION SCARE
Forget inflation it’s deflation that’s got the traders worried. New data from the Labor Department showed when compared to the same period last year, consumer prices fell 1.3 percent, the largest decline since April 1950.
Remember, an economy can go from deflationary to inflationary very quickly, reminds Joe Terranova. In fact, that's what I think is behind the drive in commodities.
Right now I think deflation is the bigger issues, counters Guy Adami. So how do you play it? I’d look at Home Depot [HD
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].
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SECTOR TRADE: HEARTLAND HURT
It seems the white hot ag trade may have started to cool off. Shares of Potash [POT
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] and Mosaic [MOS
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] were big losers after K&S, a Germany-based rival, forecast a significant drop in 2009 profit and sales.
K&S is Europe’s largest fertilizer producer, explains Tim Seymour. And it seems their pricing power has gone down. But crops need to be tilled and fertilized. It can be delayed but it’s something farmers have to do, eventually.
I’d get long Potash below $95.11, counsels Guy Adami. In my book it’s a buy.
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TOPPING THE TAPE: TECH
Technology [XLK
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] proved to be a bright spot in an otherwise gloomy market with Texas Instruments [TXN
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] leading the space higher after Merrill Lynch upgraded it to a “Buy”
It’s hard for me to embrace TXN at these levels, says Guy Adami. But Intel [INTC
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] looks interesting to me. I think it’s a buy at $15.75
Meanwhile Cisco Systems [CSCO
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] also buoyed the sector after its influential CEO John Chambers told CNBC that he has seen business activity level out in the last few months.
Qulacomm [QCOM
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] was another notable advancer after Goldman Sachs added the wireless technology supplier's stock to its "conviction buy" list.
I think Qualcomm is the name to own in the space, adds Tim Seymour. They have significant exposure to China.
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TOPPING THE TAPE: CONSUMER NAMES PULL HIGHER
Shares of Abercrombie [ANF
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] jumped on Wednesday after the company announced plans to close its money-losing Ruehl chain. The move higher was largely viewed as a relief rally triggered by a belief the retailer will soon focus on core brands.
In the consumer space, I’m watching Visa [V
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], Mastercard [MA
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] and JPMorgan [JPM
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] – three banks involved in the credit card trade, reveals Tim Seymour. With the new regulations they should come under pressure.
It seems to me Mastercard has another $10 on the downside, echoes Guy Adami.
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TOPPING THE TAPE: PHARMA & BIOTECH
With so much uncertainty in the market it appears money is rotating into Pharam names making the Health Care SPDR [XLV
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] a big winner for the day.
Biotech and Pharma came back with a vengeance, says Joe Terranova. I’d play it with the XBI [XBI
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].
It seems to me that Abbot Labs [ABT
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] bottomed out at $41.88 back on April 15th, adds Guy Adami. I think you can take a shot.
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THE OBAMA TRADE: DID OBAMA FIX FINANCIAL MARKETS?
As you may know President Barack Obama laid out his vision for reshaping U.S. financial regulation on Wednesday.
On the next page you'll find a comprehensive look at what’s on the table as reported by CNBC’s news partner, Reuters as well as Fast Money's interview with Sen. Judd Gregg (R – NH).
Data is a real-time snapshot *Data is delayed at least 15 minutes