Trading in this Technicals-Driven Market
The Dow closed slightly higher on Tuesday's trading, while the S&P and Nasdaq both finished marginally down on a slightly strengthening dollar and weakness in financials arising from Senator Dodd's proposed financial regulation. There are murmurs in the market that the market's upward momentum in exhausted, while others predict strength in equities through the end of the year.
So in this manic market, what are the big stories moving stocks and how do you play them?
Word on the Street
After Monday's big move, Tuesday's relatively flat day had mixed reactions from Wall Street. Guy Adami, who has been critical of the market's rally for some time, points out that there was a lack of volume in the day's trading, although the price action was encouraging.
Pointing out that the market is now about the 50-day moving average, Tim Seymour suggests that it may be time for the market to take a breather, but also highlights overnight reports from China - retail sales, exports and PPI - that may stand to push commodities higher with a net-positive effect on the general market.
"There are no fundamentals right now that drive the market," adds Joe Terranova, "It's all about technicals." The last time the S&P challenged 1,100, it came back down very quickly with a lot of obvious resistance. We are without that obvious resistance right now, he says, suggesting that this technical level is set to be broken at some point this week.
Pete Najarian has seen trading ranges in numerous parts of the market, including copper , oil and the major indexes, but right now traders are looking for something tangible to push things higher. He was impressed that Tuesday's trading session saw no unwarranted sell offs, and believes that if the market breaks through the 1,100 technical level, there could be an "explosive" move to the upside.
Another space that has been all the buzz in the past few trading sessions has been the retail industry, which saw the S&P Retail index hit a new 52-week high. Which companies in this space are ripe for profit? Tim Seymour sees it being a little rough for retailers, who have positioned themselves well on their balance sheets but may suffer from weak consumer demand. He points out that Amazon.com is unattractive on valuation, while names like Wal-Mart may benefit from some defensive movement if the market edges lower.
Although financials had a rough trading day, there were bright spots, including Jefferies and Lazard which are closing in on technical levels but can be bought on dips, says Guy Adami, who also has been a buyer of Raymond James , which hit a 52-week high today.
"The best-of-breed names are the strongest names," adds Joe Terranova, who suggests Apple, Google and Goldman Sachs which he expects continue their upward momentum.
First Sub prime Verdict: Not Guilty
The story of the day had to do with the story of the year: sub prime mortgages. With two Bear Stearns fund managers found not guilty on all 9 charges of securities fraud, wire fraud and conspiracy that cost investors an estimated $1.6 billion, does this mean that all sub prime crisis prosecutions are doomed to fail? What will this do to market confidence?
CNBC's Charlie Gasparino spoke to the Fast Money traders, and he wasn't surprised from the verdict. Gasparino argues that in the wake of the poor investment decisions made by people on Wall Street, the federal prosecutors were looking for someone to blame, and went after these money managers. According to Gasparino, these individuals weren't responsible for the sub prime crisis as they didn't have the ability to significantly move the market, which turned out to their benefit in the ruling.
Ratings Agencies Dive on Dodd Bill
The biggest losers arising from Senator Christopher Dodd's version of the financial regulatory reform bill were the credit ratings agencies , seeing McGraw-Hill and Moody's getting hit, hard. The bill calls for consolidation of all federal policing of banks, including a new SEC office dedicated to the ratings agencies, and will also make it easier for companies to sue over unnecessarily negative ratings.
How can you trade these companies now?
Guy Adami points out that Moody's has made a series of "lower highs and lower lows," and the trend is moving to the downside, with general short interest on the stock. Adami is a seller of Moody's in this environment.
"The business model on ratings agencies is clearly broken right now," adds Joe Terranova, who points out that the ratings agencies were late on the upgrade and downgrade cycles.
However, since Congress has already gone down the road of financial reform and nothing has yet changed, can investors be confident that the fear surrounding these stocks is unfounded, as the Dodd bill is unlikely to pass? Although this is a good thesis, Guy Adami doesn't see a buying opportunity in these stocks until the downtrend of these companies has been broken and this could allow you to have a long-term perspective.
Topping the Tape: Credit Cards
The credit card giant American Express leads the charge with new data out saying that card spending has increased, giving a sign that the high-end consumer is still alive. Guy Adami points out that MasterCard also beat earnings and predict major EPS growth. The P/E valuation on the stock also makes it a cheap one, despite its $250 price tag, he sees this company to be a "real theme" in the market, which only stands to get stronger.
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Trader disclosure: On November 10th, 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), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Najarian Owns (FCX) Put Spread, Owns (JWN) Calls, Owns (RIMM) Call Spreads, Owns (UUP) Calls, Owns (YHOO); Terranova Owns VIX Nov. 24 Puts, Owns (GS), (WYNN), (JPM), (FCX), (SU), (MRVL), (BRCM), (BAC), (GOOG), (HOC), (RIMM), (AAPL); Najarian Owns (TXN), Najarian Owns (INTC), (INTC) Call Spread, Seymour Owns (BAC); Seymour Owns (AAPL), Najarian Owns (LAZ), (LAZ) Puts, Najarian Owns (BTU) Call Spread, Najarian Owns (EXPE) Calls
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (CLB)
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Citigroup Global Markets And/Or Affiliates Has A Significant Financial Interest In Relation To (EXPE), (YHOO), (GOOG)
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