Both the S&P and Dow were trading lower around lunchtime Tuesday after a drop in consumer confidence dragged down investor sentiment.
Considering investors were already skittish after the huge two week rally, a sharp decline in profit at Viacom and a loss posted by Valero only amplified feelings of anxiety.
There is uncertainty about how fast the rally can go and how far it can go, explains Robert Phillips, of Raymond James.
Is Tuesday's market weakness an early sign of a sharp pull back or nothing more than expected profit taking?
Instant Insights from the Fast Money traders
I think the move in the market is just profit taking, counsels Pete Najarian. We had a big whoosh to the upside so I’m not concerned by the pullback. Bank of America and Citigroup are two of the most active names being traded on the options market and investors are betting these stocks go higher.
I think Pete’s exactly right, adds Steve Grasso of Stuart Frankel. All that’s happened is that we came too far too fast. I can tell you my clients still think we’re going to 1000 on the S&P.
That’s right, a pull back is to be expected, adds Dennis Gartman of the Gartman Letter.
I can’t get excited about this market, counters Patty Edwards of Storehouse, not with the housing market as weak as it is. I know that Case-Schiller showed the first monthly gain since the middle of 2006, but I just can't get excited. If you have to play housing play it with Lowe’s or Home Depot , she says.
TOPPING THE TAPE: DRUG STOCKS
Shares of Teva traded higher on Tuesday after the world's largest generic drugmaker, predicted its Barr Pharmaceuticals acquisition would yield better-than-expected results.
Completed in late 2008, the acquisition of rival Barr was a key growth driver for Israel-based Teva and company officials said Barr added to earnings during the second quarter.
Meanwhile, share of Amgen popped after the company reported much better-than-expected second-quarter earnings and raised its full-year profit forecast.
What’s the trade?
Cowen upgraded Aetnaand there’s talk that the public alternative for healthcare may be scaled back, explains Steve Grasso. Those are both bullish developments for the sector.
I love Teva, adds Patty Edwards. Their revenue growth was phenomenal.
OPTIONS ACTION: GENERICS
Pete Najarian has spotted unusual options activity in Mylan Labs .
The large number of September 15 calls trading suggests that options investors are betting the stock could make a significant move higher, Najarian explains.
OIL STOCKS LOWER
A weak report from Valero dragged down the energy sector after the refiner reported a second-quarter loss citing weak demand. Meanwhile BP shares plunged after the company said lower oil prices and weak refining margins ate into profits.
What’s the trade?
I’m getting short oil, reveals Dennis Gartman. I think crude above $70 is too high.
OUTSIDE THE STOCKS: 2-YR. AUCTION
Investors are keeping a close eye on the bond market this week with $115 billion in new debt being issued by the government. On Tuesday the government will auction $42 billion of two-year notes, with $39 billion in five-year notes coming Wednesday and $28 billion of seven-year notes on Thursday.
Treasury Auctions This Week
Tuesday: $42 billion, 2-Year Notes
Wednesday: $39 billion, 5-Year Notes
Thursday: $28 billion, 7-Year Notes
The U.S. government is relying on successful auctions to help fund its stimulus programs, but with the debt load expected to reach $1.84 trillion this year, some investors are concerned that demand will fall off.
If that were to happen, the government would be forced to raise the returns on bonds to attract investors. That in turn could hike up interest rates on mortgages and other types of loans that are closely tied to long-term Treasury yields, potentially choking off a recovery.
So far, previous auctions have been met with decent demand. "But the government needs an awful lot of money," muses Dennis Gartman. "It concerns me."
SECTOR TRADE: TECH
Investors are keep a close eye on the tech trade with M&A heating up in the space. On Tuesday IBM announced plans to buy business analytics company SPSS Inc for $1.2 billion in cash to better compete with Oracle and other firms in the growing field of business intelligence.
SPSS shareholders will receive $50 a share, a 42 percent premium to Monday's closing price of $35.09 on the Nasdaq.
What’s the trade?
If I was an owner of IBM, I’d take money off the table, counsels Guy Adami. I think the stock could pull back to $110.
TRADE TO GO: MCKESSON
I like McKesson going into earnings, explains Pete Najarian. The company reports after the bell and they’ve only missed once in 16 quarters.
CALL THE CLOSE:
Pete Najarian of OptionMonster: I think the market goes lower in the short term.
Patty Edwards of Storehouse Partners: I’m a seller.
Dennis Gartman, author of the Gartman Letter: I’m getting short.
Steve Grasso, Stuart Frankel floor trader: I’m a buyer.
Got something to to say? Send us an e-mail at email@example.com and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment but not have it published on our website send those e-mails to firstname.lastname@example.org.
Trader disclosure: On July 28th, 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), (MSFT), (NUE), (BTU); Seymour Owns (AAPL), (AA), (BAC), (FXI); Seygem Asset Management Is Short (VALE); Seygem Asset Management Is Short (PBR); Finerman's Firm Owns (MSFT), (PM), (SVU); Finerman's Firm And Finerman Own (BAC) Preferred Shares, Finerman Owns (BAC); Finerman's Firm Owns (WFMI) Puts; Finerman's Firm And Finerman Own (WFC) Preferred Shares, Finerman's Firm Is Short (WFC); Finerman's Firm Is Short (USO), (BWA), (IYR), (IJR), (MDY), (SPY), (IWM); Terranova Owns (MSFT), (MCD), (AMZN)
For Joe Terranova:
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),
Virtus Diversifier PHOLIO Owns (DBC)
Virtus Diversifier PHOLIO Owns (DBV)
Virtus Investment Partners Owns More Than 1% Of (ABD)
Virtus Investment Partners Owns More Than 1% Of (CBL)
Virtus Investment Partners Owns More Than 1% Of (CAL)
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DLR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (MEE)
Virtus Investment Partners Owns More Than 1% Of (DBC)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (DBA)
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
Virtus Investment Partners Owns More Than 1% Of (SKT)
Virtus Investment Partners Owns More Than 1% Of (TNB)
Virtus Investment Partners Owns More Than 1% Of (UA)
Virtus Investment Partners Owns More Than 1% Of (WBMD)
For Patricia Edwards
Edwards Owns (PM)
Storehouse Partners Owns (JNK) For Clients
CNBC.com with wires