Halftime Report: Desperately Seeking Direction
New signs emerged on Wednesday that the bulls may be losing their grip on this market. Despite reports showing a jump in home sales and factory orders both the Dow and S&P 500 gave back most of their early gains, although they were both positive late afternoon.
After a five-month run-up in stocks, with little break, investors are questioning whether the market can go much higher without evidence of actual economic growth.
In this environment, can stocks continue to rally?
Instant Insights with the Fast Money traders
Investor expectations are rising, explains Jared Levy of Peak6. It seems that options investors are now betting on downside. Remember, the 50-day moving average on the S&P is around 950. That’s a long way from where we are now.
Also, we’re in the doldrums of August, adds Danielle Hughes of Divine Capital. That probably has something to do with the action in this market. But I have to admit right now it seems like we’re hitting a ceiling.
There seems to be a lot of complacency in the market, adds Oppenheimer’s Carter Worth and that’s a concern for me.
We have more Treasury auctions coming too, reminds Brian Kelly of Kanundrum. That makes some investors nervous.
OIL SLIDES TO $70
Energy shares appear to be the wildcard in this market with oil dropping to near $71 a barrel on Wednesday, extending losses from the previous session.
The move was largely triggered by results from the American Petroleum Institute (API) which showed an unexpected rise in supply of 4.3 million barrels – very different from expectations which were for a 1.1-million-barrel drop.
Profit taking seems to be accelerating after the bulls pushed crude to the key psychological $75 mark for the first time since last October, crowning a near 130 percent jump in prices from the lows at the turn of the year.
What must you know about this trade?
Yesterday oil made an intra-day reversal, explains Joe Terranova, and that's short-term bearish. However, if oil holds above $68 I’m remain a buyer longer term.
If you're playing the move lower, I’d be careful getting too short, adds Jared Levy, Don’t forget September is a big hurricane month.
However, inventory numbers are up substantially and the Christmas contract seems to be stuck around $75, adds Carter Worth. I can’t imagine oil breaks out.
MORE SIGNS OF HOUSING BOTTOM
Homebuilders traded lower on Wednesday despite data that showed sales of newly built U.S. single-family homes rose for a fourth straight month in July, the fastest pace since last September.
What must you know about this trade?
Personally, I don't think these housing numbers are all that great, says Brian Kelly.
And the home builders are already aggressively priced, adds Carter Worth.
Also, I think a lot of activity in the hosuing market has to do with the government incentive for first time home buyers, adds Danielle Hughes. But that expires next quarter and it could trigger weakness in the sector.
OUTSIDE THE STOCKS: 5-YR. NOTE AUCTION
The U.S. government debt market traded slightly lower on Wednesday ahead of a $39 billion auction of new five-year notes.
Analysts expect support for Treasuries to persist despite longer-term concerns about the ballooning federal deficit. There will likely be intraday volatility as dealers make room for the five-year supply, they added.
"The market bias is modestly positive with an erratic range," says John Spinello, chief Treasury strategist at Jefferies.
What’s the play?
In the bond market, I think the play is long muni bonds, says Carter Worth. You can play it with PMF or BAM.
OPTIONS ACTION: HUMAN GENOME SCIENCES
Options trader Jared Levy has spotted unusual options activity in Human Genome Sciences.
Call buying suggests to Levy that this stock could move substantially higher. The bet could be linked to speculation that the company may be a takeover candidate with GlaxoSmithKline rumored to be a likely buyer.
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Trader disclosure: On Aug. 26th, 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 (AMZN), (MSFT), (SU), (XOM), (WFT); Terranova Owns (CCL) Puts; Terranova Is Short (SHLD), (EES); Adami Owns (AGU), (C), (GS), (INTC), (BTU), (MSFT), (NUE); Cortes Owns (SPX), (GS); Cortes Is Short Nasdaq 100; Cortes Is Short (JPM); Najarian Owns (BAC); Najarian Owns (BUCY) & Short (BUCY) Calls; Najarian Owns (C) Calls; Najarian Owns (FCX), Is Short (FCX) Calls, Owns (FCX) Puts; Najarian Owns (HGSI) Call Spread; Najarian Owns (INTC) Calls; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (PALM) Call Spread; Najarian Owns (TXT) Calls; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (YHOO) Call Spread; Najarian Owns (XHB) Call Spread
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