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Halftime Report: Traders Game Roubini's U-Shaped Recovery

Monday, 5 Oct 2009 | 1:19 PM ET

After two straight weeks of declines, the both Dow and S&P 500 traded higher with positive comments from Goldman Sachs and strong ISM data generating the bullish sentiment.

However the Fast Money traders are watching something else. They believe that comments made on Monday by widely followed market analyst Nouriel Roubini on CNBC could also be moving markets.

Rejecting the notion that the economy could recover more quickly than some had thought, Roubini said the US still faces too many obstacles to expect rapid growth.He said the rebound will more likely resemble a "U" shape.

Fast Money Halftime Report
The Fast Money traders weigh in on the markets and share their midday trading advice.

How should a U-shaped recovery influence your trading?

Nouriel Roubini generated talk of U-shaped recovery, when before the market was expecting a V-shaped recovery, explains Fast Money trader Joe Terranova. That means there will be a period of weakness (the bottom of the U) and it suggests easy policy conditions will remain in place and the dollar will remain weak. I see that translating into a strong commodities story.

If Ruobini is right and we have a U and not a sharp V, it could give miners a boost, adds OptionMonster Jon Najarian. In fact RBS just upgraded BHP Billiton and Rio Tinto two mining stocks. (Under this thesis, the weak dollar should drive metal prices higher.)

U-shaped recovery, V-shaped recovery – that’s a parlor game, says Zach Karabell of RiverTwice. The stock market will be driven by earnings that come out over the next month. And investors will be looking at efficiencies and global growth. Not the shape of the economic recovery. But I do think the miners are a good trade

I agree whole-heartedly with Zach, says Mike Khouw of Cantor Fitzgerald.

>Click here for more of CNBC’s interview with Roubini


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FINANCIALS LEAD MARKET

As we mentioned above comments from Goldman Sachs helped drive the banking sector higher. The firm upgraded the large-cap bank sector to "attractive" from "neutral," saying share prices for companies in the industry didn't reflect their earnings power.

What’s the bank trade?

I’m a buyer of large banks, says Joe Terranova. I like JPMorgan and Wells Fargo. It seems to me normalized earnings can continue for these names.

In the space I’d prefer big cap financials that have lagged, muses Zach Karabell, though admittedly that’s hard to find.

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CHART OF THE DAY: NASDAQ BETTER HOLD!

With the Nasdaq down about 4% in the past two weeks some market mavens suggest the tech heavy index is nearing an inflection point. According to investors such as Dennis Gartman, author of the Gartman Letter, if the Nasdaq does not hold Friday’s lows – things could turn for the worse, very quickly.

What’s the tech trade?

My instinct tells me that the levels will hold, says Mike Khouw.

If charts were so easy to read we’d all be rich, says Zach Karabell. But fundamentals in this space remain strong. I think there’s a lot to feel bullish about despite patterns in charts.

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OPTIONS ACTION: BROCADE

Jon Najarian has spotted unusual options activity in Brocade.

A large volume of calls traded suggests this stock could make a sharp move higher, explains Najarian. Market speculation suggests that Brocade has quietly put itself up for sale and there’s chatter that Hewlett and Oracle are potential buyers.

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GOLD TRADES HIGHER

Gold futures edged up in quiet trade on Monday, whipsawing between a weaker dollar and falling crude oil prices, but staying above the $1,000 an ounce level

What’s the trade?

I’d stay with gold. I think it pushes higher through the end of the year, says Joe Terranova.


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Trader disclosure: On October 5, 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); Grasso Owns (AAPL), (ABK), (BAC), (C), (COST), (CSCO), (PFE), (V), (MMT); Terranova Owns (NOV), (JPM); Terranova Owns Dec. Gold Futures; Terranova Owns March Sugar Futures; Terranova Owns Crude Futures; Terranova Is Short (CCL), (WYNN), (GRMN); Najarian Owns (C) Calls; Najarian Owns (BRCD) Call Spread; Najarian Owns (DELL) Call Spread; Najarian Owns (GE) Calls; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (TEVA); Najarian Owns (ORCL) & Short (ORCL) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (WFC) Put Spread; Najarian Owns (YHOO) Call Spread

For Steve Grasso
Stuart Frankel Owns (ACS)
Stuart Frankel Owns (GERN)
Stuart Frankel Owns (MSFT)
Stuart Frankel Owns (NWS.A)
Stuart Frankel Owns (NYX)
Stuart Frankel Owns (PDE)
Stuart Frankel Owns (PFE)
Stuart Frankel Owns (ROK)
Stuart Frankel Owns (XOM)
Stuart Frankel Owns (SDS)
Stuart Frankel Is Short (QQQQ)

Jon Najarian Owns (YUM)
Pete Schiff Owns (POT)
GE Is The Parent Company Of CNBC
NBC Universal Is The Parent Company Of CNBC


CNBC.com with wires

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JPM MLP ETN
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ORCL
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RIO
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WFC
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