Stocks strugged for direction on Thursday after the energy sector followed slumping oil prices lower and technology issues declined, putting the brakes on an August rally that has taken stocks to 10-month highs.
Much like yesterday, the bulls were unable to push the market a lot higher despite positive data which showed the U.S. economy shrank less than expected in the second quarter and fewer workers filed new claims for unemployment benefits last week.
Although the news was “less bad” investors are now questioning whether the market can go much higher without evidence of actual economic growth.
Instant Insights with the Fast Money traders
For market direction, I’d look ahead to next week, counsels Fast Money trader Joe Terranova. We get ISM numbers and employment numbers and they could both be bullish. Also the dollar is getting weaker which suggests commodities are back in play.
Stocks that I thought would have been beaten-up today were not, adds Option Monster Jon Najarian. That's also positive.
But the market is responding less positively to positive data, counters Jared Levy of Peak6. I’d be cautious. The fundamentals are not totally there across the broad market.
I just can’t get excited about the market either, says Mike Gurka of First Street. Bank failures are at 15-year highs and that just doesn’t translate well for the housing sector.
OIL CONTINUES SLIDE
Oil slid further on Thursday, extending losses from the previous session partly due to reports earlier in the week that showed an unexpected increase in supply.
For most of the week, investors have been locking-in profits after crude touched 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.
"The price action of the past 24 hours would appear to favor additional price declines," says Jim Ritterbusch, president of Ritterbusch & Associates, adding that the failure to break the $75 level could spur a sizeable correction.
However, if the dollar declines it should support energy names, reminds Joe Terranova. I’m bullish oil and I’d own energy names.
If you’re looking at oil versus dollar, I think there’s more risk in being short the dollar than being long, adds Mike Gurka.
PAULSON BUYING MORE BANKS
According to published reports, hedge fund manager John Paulson, who bet against financial companies after foreseeing the credit crisis, has been buying Citigroup shares over the past few weeks.
The New York Post reported Paulson bought around a 2 percent stake in Citigroup, a source told the paper. An investor with a 5 percent or higher stake in a company would have to make a disclosure with the U.S. Securities and Exchange Commission.
The paper also says Paulson believes Citigroup's assets are undervalued. A spokesman for Paulson declined to comment to the paper on the hedge-fund manager's investment activities.
What’s the trade?
It seems to me that people like Paulson are stepping into the consumer banking sector because it seems like housing is improving, says Joe Terranova. I’d recommend owning the consumer banking sector.
In the space I’m watching AIG , reveals Jared Levy. The stock is hard to borrow and I think the rally in this name is probably overdone.
I’m seeing unusual put buying in AIG, adds Jon Najarian. That seems like a bet to the downside.
OUTSIDE THE STOCKS: 7-YR. AUCTION
Investors are keeping a close eye on the bond market with results from the latest Treasurys auction due at 1pm ET.
Earlier in the week, bond prices held their own as demand for new U.S. government debt remained robust. "(It appears that) the market is digesting the current supply easily," says John Spinello, a bond strategist at Jefferies.
What must you know?
For me bond auctions give us a reading on the direction of the dollar, says Jared Levy. That’s the take away.
It seems to me that the world is short the dollar, adds Dennis Gartman and it seems to me that boat is crowded. I wouldn’t be surprised to see the dollar rally if only because shorts will need to cover.
Meanwhile in the currency market, the yen climbed across the board as investors worried that the risk rally in past months may have been overdone. The yen is viewed as a safe-haven currency along with the dollar and tends to strengthen when risk appetite tumbles.
CALL THE CLOSE
Joe Terranova: I’m a buyer
Jon Najarian: I’m a buyer.
Jared Levy: As long as we hold 1010 on the S&Ps I’m a buyer.
Michael Gurka; I’m short. On a 6-month chart I’d need to see 1036 on the S&P to get long and on a 2-year chart I need 1014. That’s support and I think we take that out.
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Trader disclosure: On Aug 27th, 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), (FCX), (BTU), (SU), (XOM), (WFT); Terranova Is Short (SHLD), (EES); Terranova Owns (CCL) Puts; Adami Owns (AGU), (C), (GS), (INTC), (BTU), (MSFT), (NUE); Najarian Owns (AAPL) Call Spread; 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 (JPM) & Short (JPM) Calls; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (PALM) Calls; Najarian Owns (TXT) Calls; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (WFT) Call Spread; Najarian Owns (YHOO) Call Spread; Najarian Owns (XHB) Call Spread; Cortes Owns (SPX), (GS); Cortes Is Short Nasdaq 100; Cortes Is Short (JPM); J. Najarian owns (DELL) Calls ; J. Najarian Owns (AAPL) & Short (AAPL) Calls ; J. Najarian Owns (CHU)
CNBC.com with wires