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S&P Hits 2-Month Low

S&P HITS 2-MONTH LOW

The S&P 500 fell to its lowest level in 10 weeks on Tuesday as talk of a second government stimulus plan heightened fears that the economy remains weak. That in turn led to speculation that many stocks may be overpriced with too much of recovery already priced in.

Cyclical stocks in the materials, energy , and industrial sectors, which had ridden a recent upswing in sentiment led the market down as commodity prices eased. Copper, a barometer of global economic strength, fell nearly 2 percent.

How should you be positioned?

Strategy Session with the Fast Money Traders

Considering how dramatic the move higher was, the move lower doesn’t surprise me, muses Karen Finerman.

It’s not a good sign that we finished near the lows of the session, adds Tim Seymour. The S&P broke through the 50-day moving average, another negative sign, and now I think the S&P could well go down to 830.

I agree with Tim, adds Guy Adami. I think stocks go to 830 but that’s a good thing in the long run. It will give investors an opportunity to jump into this market. I’m starting to turn bullish but not yet.

The market is now back at levels we haven’t seen since April, adds Joe Terranova. I would be as flat as possible heading into earnings. But I would not play it short.

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COMMODITIES WEIGH ON STOCKS

U.S. crude oil futures fell on Tuesday as concerns about the pace of economic recovery and tepid demand took crude prices off an early high in choppy trading.

"The worries are that the pace of the economic recovery hasn't materialized the way that people who plunged into the commodity markets thought, and now they are running for the exits. The question is how far they will run," explains Gene McGillian, an analyst at Tradition Energy.

There were also reports that the Obama administration may step in and place stricter regulations on commodities trading to limit speculation, explains Joe Terranova. If the CFTC does in fact restrict the number of oil futures an entity may hold then I think investors will turn elsewhere – such as energy equities.

You know speculation works both ways, adds Guy Adami. Speculators took oil down to $35 and nobody was complaining. If you’re looking for a trade, look at Schlumberger or the OIH and think about initiating a long position.

And on a related note, The United States Natural Gas Fund will temporarily suspend issuing new shares pending regulatory approval to expand the number of shares it can issue to 1.2 billion, the company said in a filing with the U.S. Securities and Exchange Commission on Tuesday.


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THE OBAMA TRADE: OPEN TO COMPROMISE?

Shares of UnitedHealth, Aetna and other HMOs closed higher after three major hospital associations offered to contribute about $155 billion over 10 years to help pay for a U.S. healthcare overhaul, The Washington Post reported on Monday, citing industry sources.

However, speculation that the President may be backing down from a government run plan appear to be premature.

In a statement released while traveling in Russia, Obama strongly endorsed a public plan and said it was one of the best ways to bring down costs and "force the insurance companies to compete and keep them honest."

What's the trade?

Goldman just put a $30 price target on UNH , explains Guy Adami. I think it goes to $27. Of all the stocks in the space this one should set up best.

I find these developments interesting, muses Karen Finerman. I actually find these stocks more interesting higher than they were a few days ago lower.

I wouldn’t touch this sector, counters Tim Seymour. Considering all the uncertainty there are better places to make money.

I wouldn’t play here either, echoes Joe Terranova.

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TOPPING THE TAPE: CHIPS BATTLE TOUGH TAPE

The SMH couldn’t overcome negative sentiment despite the fact that Bank of America raised its rating on both Intel and Marvell Technology to "buy" from "neutral.

The analyst team also said the semiconductor sector will grow 21 percent in 2010 due improving demand for electronics and lower inventories.

What's the trade?

I like these companies but right now Intel as well as Oracle are both trading near the top of their ranges, explains Guy Adami. This is not the time to become a buyer.

IBM is clearly a name to play for the long run, says Joe Terranova. And yes it broke below a critical price level, but right now I’d stay on the sidelines.

I’d also wait for IBM, echoes Tim Seymour, but I’m a buyer around $95.

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ANALYZE THIS: APPLE'S OTHER ACT

It appears Apple’s decision to slash prices a few weeks back was a smart business move.

Although critics suggested it might harm the Apple brand by making it seem cheap, the move has clearly boosted sales of Macbooks. Piper Jaffray analyst Gene Munster tells Fast Money he’s confident Apple sold at least 2.2 million units during the third quarter if not more.

Munster is bullish in part because inventories are running low.

“We track product lead-times and our records show that Apple has never had a 7-10 day delay on its most popular 13" model, with the most recent significant delay being 5-7 days over 2 years ago in 9/08," Munster tells Fast Money.

"We see this as a sign that demand is outpacing the company's build expectations, and it may take several weeks to reach a supply demand equilibrium."

That's encouraging news for Apple, which up until June had seen its Mac sales slowly slide, albeit more gently than the rest of the PC industry.

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DISCOVER, FINANCIALS FALL

Shares of Discover Financial Services dragged down banks after the company announced it will offer common stock to strengthen its balance sheet and possibly repay TARP funds.

On a related note, patterns in the Bank Index look like the 50-day is going to move above the 200-day moving average, explains host Melissa Lee.

With so much bearish sentiment in the sector, what’s the bank trade?

It seems that JPMorgan is getting near levels where it’s a short, muses Guy Adami. I think banks stocks are sells on rips rather than buys on dips.

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AFTER HOURS ACTION: RUBY TUESDAY

In the after hours shares of Ruby Tuesday popped after the restaurant posted quarterly net income that handily beat Wall Street estimates, helped by stabilizing sales trends.

Net income for the fiscal fourth quarter ended June 2 rose to $14.4 million, or 28 cents, from $13.9 million, or 27 cents per share, a year earlier. Analysts, on average, had been expecting earnings of 20 cents per share, according to Reuters Estimates.

My restaurant trade is longBurger King and shortChesecake Factory against it, says Karen Finerman, merely because some of these stocks have run far and fast.

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USING OPTIONS TO PROTECT YOUR PROFITS

Investors are clearly nervous heading into this telling earnings season. How can you protect your portfolio?

Fast Money asked Brian Overby, of Tradeking who suggested using options as insurance during these tumultuous times.

How do you do it? Find out now. Watch the video!

You can see our entire interview with Brian Overby at the end of the Word on the Street video.




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Trader disclosure: On July 7th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Terranova Owns (MSFT), (XBI), (ABT); Terranova Owns (UNG) Puts; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Finerman Owns (TBT), (RIG); Finerman's Firm Owns (FCN), (MSFT), (NOK), (PBR), (RIG), (TBT), (WMT), (FLS); Finerman's Firm Owns (BAC) Preferred; Finerman Owns (BAC) Preferred; Finerman's Firm Is Short (BAC), (IYR), (IJR), (MDY), (SPY), (USO); Seymour Owns (AA), (AAPL), (BAC), (BX), (DRY), (EEM), (FXI), (INFY), (SBUX); Seymour's Firm Is Short (PBR); Seymour's Firm Owns (FCX), (NOK)

Piper Jaffray has received compensation from (DRIV)
Piper Jaffray has received compensation from (VCLK)
Piper Jaffray has received compensation from (WWWW)

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