On Friday traders were closely watching the action in banks stocks, as negative news out of Dubai triggered worries that the credit crisis may have returned to haunt the bulls.
Trouble first surfaced on Wednesday after Dubai, part of the United Arab Emirates federation, asked to delay payment on billions of dollars of debt.
Immediately, banks around the world downplayed their exposure to the region, with French Prime Minister Francois Fillon attempting to assuage any panic and reduce speculation that the world may be entering second round of the financial crisis.
Reaction in world markets from Tokyo to London was far more negative than here in the US where both the Dow and S&P made sharp moves downward but closed off the lows of the session.
Considering the market action could have been much worse, investors are wondering if Dubai was only a blip on the radar? Or, is it the first ripple of a larger crisis?
Strategy Session with the Fast Money traders
If this was the big macro event that traders were waiting for since the March lows to give them a reason to sell equities, then it’s a non-event, says former Neuberger Berman managing director Gary Kaminsky. I think it’s a yawner.
Dubai isn’t new news. This was telegraphed over the summer, Kaminsky adds. All I see here is another reason for traders to continue rotation – which has been going on for the better part of a month now – into more predictable growth names such as consumer staples.
I disagree, counters Brian Kelly of Kanundrum. I think Dubai is a big event. The reason indexes are off their lows is because most fund managers are global players and already got out of their overseas positions.
And I think we could see further stock market weakness, Kelly adds . Remember, the subprime crisis was supposed to be contained. For traders the question raised by Dubai is, who’s next and how badly will the crisis spread? Until we have more clarity I expect investors will likely buy dollars for safety.
I’m watching 1070 on the S&P adds JJ Kinahan of TD Ameritrade. I think we retest that important technical level and how the market trades from there will be telling.
I’m watching the Vix , says Brian Stutland of Stutland Equities. Out to February they’re trading up to 28 while the Vix itself is around 24. That says to me big investors expect volatility to come back into the market.
What do you think? We want to know!
DOLLAR JUMPS ON FLIGHT TO SAFETY
It seems the safe haven trade is back on. Concerns about Dubai's debt problems prompted traders to slash risk exposure and unwind dollar-funded carry trades sending the Dollar Index higher on Friday.
What’s the trade?
I think the dollar will remain pretty strong, says Brian Kelly. As mentioned above, the question raised by Dubai is who’s next and how badly will the crisis spread? Until traders have more clarity they will likely buy dollars for safety.
OPTIONS ACTION: EMERGING MARKET
I’ve spotted unusual options activity in the Emerging Markets ETF, says JJ Kinahan.
Larger than usual volumes of December 40 puts and March 38 puts leads me to believe investors are worried about spill over effect from Dubai into other emerging markets.
GOLD FALLS FOR FIRST DAY IN 9
Gold made its biggest single-day drop in a year before recovering slightly, as worries over debt problems in Dubai drove investors to cut positions, unleashing a broad sell-off.
Although bullion has safe-haven appeal, it appears investors were more concerned about the precious metal sustaining its current level – after its sharp running higher -- in an environment of growing economic uncertainty.
What’s the gold trade?
I think this could be a buying opportunity in gold, says Brian Kelly. Between 1080 and 1070 there should be support. As we get closer to that level I’d look to put on gold positions.
BLACK FRIDAY TRADES
It appears the holiday shopping season is off to a good start with consumers flooding malls for early-morning bargains.
Black Friday, the day after U.S. Thanksgiving, is often the single busiest shopping day of the holidays, which accounts for nearly one-fifth of the retail industry's annual sales.
What’s the retail trade?
I think high-end retailers such as Tiffany will do well this season, says JJ Kinahan. People with money will spend it. However I’m concerned about specialty retail names such as Abercrombie if their competition is out cutting prices.
I’m watching Amazon , says Brian Stutland. I think they’re well positioned into the holidays and I also think investors are underestimating the strength of the American consumer.
I think the 80% of people that have jobs will spend this holiday, says Gary Kaminsky. In the space I like Walmart , Best Buy and Bed Bath & Beyond. Retail is much more important to the short-term market action than what’s happening in Dubai.
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CNBC.com with wires