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Does Fractured Market Signal Crowded Trades?

Published: Tuesday, 30 Mar 2010 | 5:28 PM ET

Text Size

By: Lee Brodie
Producer

Stocks [.SPX Loading... () ] inched higher once again Tuesday, but no doubt about it; the bull market is running out of steam.

And internally, it’s starting to fracture. Take a look at the chart below. As you can see sectors of the S&P aren’t moving in unison – not by a long shot.

S&P 500 SPDR ETFs: Q1
Industrials +13%
Financials +11%
Consumer +11%
Staples +6%
Health care +4%
Materials +3%
Energy (unch)
Technology +1%
Utilities -4%

What should you make of it?

The lopsided performance that's illustrated above may have something to do with crowded trades, explains Fast Money anchor Melissa Lee. Following are some potentially crowded trades.

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CROWDED TRADES: EM
Some of the traders on the desk worry that emerging markets [EEM Loading... () ] such as China qualify as crowded trades.

And they’re pointing to massive inflows as their ‘tell.

DIVERSIFIED EMERGING MARKET FUNDS INFLOWS:
JANUARY & FEBRUARY
2010: $2.2BLN
2009: $1.4BLN
2008: $0.5BLN
2007: $2.4BLN
2006: $7BLN
2005: $2.2BLN
Source: Morningstar

What’s the trade?

I don’t think EM is overcrowded broadly, says EM trader Tim Seymour, certainly not China. It seems to me investors are underweight China. The overweights are Brazil, Russia and India and that's where I'd be careful.

I’m concerned about the rhetoric surrounding the yuan, counters Guy Adami. That makes me worry about China.

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CROWDED TRADES: EURO

With so many investors betting on further weakness in Europe, concern is growing that the short euro [EUR=X Loading... () ] trade may be too crowded.

What’s the trade?

Crowded or not I’d stay short euro, says Steve Cortes of Veracruz. I think the euro has much further to go on the downside.

But euro weakness is good for exporters, says Tim Seymour. That should benefit Germany.

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CROWDED TRADES: LONG GOLD

With so many investors bullish on gold [US@GC.1 Loading... () ] as an inflation hedge, concern is growing that the gold trade overcrowded?

What’s the trade?

I’m reducing my gold positions, says Patty Edwards. But I like holding something tangible so I’m looking at Platinum.

If gold trades below $1060 I’d run for the exits, counsels Guy Adami.

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HOT TRADES FOR A TEPID MARKET

Considering all the uncertainty and divergent outlooks, how should you navigate this market?

I'd look at sectors that seem most bullet proof, says Guy Adami. Look at Agco [AGCO Loading... () ] in agriculture - and Akamai [AKAM Loading... () ] in digital.

I'd look at utilities [XLU Loading... () ], says Tim Seymour. They’ve lagged.

I like IBM [IBM Loading... () ] which is only trading at 11 times earnings, says Karen Finerman. That’s very attractive to me. It’s not terribly exciting but you won’t get crushed to the downside owning a high quality name like this one.

* It's also worth noting that not everyone thinks the chart at the top of the post illustrates crowded trades.

That chart says to me that investors are currently bidding up sectors that priced in a U-shaped recovery (or weaker recovery), says Joe Terranova. Considering the economic data has been mostly bullish more investors are bet on a V-shaped recovery (one that moves sharply higher).

------

UNDER THE RADAR: TOOL TRADE

The traders are watching the action in Danaher [DHR Loading... () ] after the industrial conglomerate raised its profit outlook for the first quarter.

What’s the trade?

With an 80-handle, if you’re in the name I’d take profits, says Guy Adami. However on a pullback I’d get long. Also I’d put SNA [SNA Loading... () ] on the radar.

Elsewhere in the space I’d take profits in Stanley Black & Decker [SWK Loading... () ] , says Tim Seymour.

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DON'T COUNT RIM OUT ON VERIZON-APPLE REPORT

On Monday’s Fast Money we told you that Apple [AAPL Loading... () ] appeared to be moving closer to a deal with Verizon [VZ Loading... () ].

Some traders on the desk, notably Joe Terranova, interpreted that news as rather bearish for rival Research In Motion [RIM Loading... () ].

But Pip Coburn of Coburn Ventures says don’t count out the BlackBerry maker just yet.

What must you know? Watch the video now and hear from Coburn.

Fast Money executive producer John Melloy wrote about this topic at length in his blog “Behind The Money: Don’t Count Blackberry Out on iPhone-Verizon Report.

Click here to go to Behind The Money

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Trader disclosure: On March 30th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (IPI) Call Spread; Najarian Owns (MRVL); Najarian Owns (CLF) Call Spread; Najarian Owns (YUM) Call Spread; Najarian Owns (DOW) Call Spread; Finerman's Firm Is Short (IYR), (IWM), (SPY), (MDY); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Preferred; Finerman Owns (BAC), (BAC) Leaps; Finerman's Firm Owns (FLIR); Finerman Owns (GOOG); Finerman's Firm And Finerman Own (GGP); Finerman's Firm Owns (NOK), (OSIP); Finerman's Firm And Finerman Own (WFC); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Terranova Is Short (EL); Terranova Is Short (GS); Terranova Is Short (CAL); Terranova Is Short (UAUA); Terranova Is Long May 2010 Crude Oil Futures; Cortes Is Short Euro; Cortes Is Short Treasuries; Cortes Owns (IWM), (IBB) vs. Short S&P; Edwards Owns (TM), (UUP)

For Joe Terranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (GOK)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLI)

For Patty Edwards
Edwards Owns (AAPL) For Clients
Edwards Owns (BA) For Clients
Edwards Owns (BAC) For Clients
Edwards Owns (C) For Clients
Edwards Owns (F) For Clients
Edwards Owns (GLD) For Clients
Edwards Owns (PGM) For Clients
Edwards Owns (GS) For Clients
Edwards Owns (GOOG) For Clients
Edwards Owns (MMM) For Clients
Edwards Owns (MOT) For Clients
Edwards Owns (MS) For Clients
Edwards Owns (MSFT) For Clients
Edwards Owns (NFLX) For Clients
Edwards Owns (NOK) For Clients
Edwards Owns (QQQQ) For Clients
Edwards Owns (RIMM) For Clients
Edwards Owns (SPY) For Clients
Edwards Owns (T) For Clients
Edwards Owns (TM) For Clients
Edwards Owns (VWSTX) For Clients
Edwards Owns (VWLTX) For Clients
Edwards Owns (VZ) For Clients
Edwards Owns (WFC) For Clients
For Heath Terry
FBR Capital Markets Is a Market Maker Or Liquidity Provider For (NFLX)

For Pip Coburn
Coburn Is A Partner In Buckeye Delta Fund
Buckeye Delta Fund Owns (AAPL)
Buckeye Delta Fund Owns (GOOG)
Buckeye Delta Fund Owns (RIMM)
Buckeye Delta Fund Is Short (MOT)
Buckeye Delta Fund Is Short (YHOO)
Buckeye Delta Fund Is Short (NOK)

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