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Bullish Beginnings Or Dead Cat Bounce

Stocks snapped a three-day losing streak on Friday with the Dow making triple digits gains.

However it was the action in the S&P that triggered the most chatter.

The broad market index fell to its ‘flash crash’ low (about 1056) early in the session but then turned higher and closed in positive territory leading to speculation that the market had found a level of support.

Nonetheless, the S&P 500 remains down 10% from its April 23rd high, a move that’s traditionally considered a correction.

Should you position for a market that’s about to climb or is there a whole lot more selling to come?

Instant Insights with the Fast Money traders

I stepped in and started buying on Friday, says Joe Terranova. I think at the end of the year we’ll look back and say this was a great buying opportunity. Now investors have a point of reference; use the flash crash low (1056) as a stop.

Not only did we test the flash crash low but going into the close we got another bullish signal, adds Jon Najarian. Both bulls and bears were afraid to hold their positions into the week-end, but guess who won? The bulls. The bears were not willing to hold shorts after all the money they made this week.

But that was a short squeeze, muses Steve Grasso. Investors didn’t want to be short into the week-end and risk an upside catalyst coming out of Europe that would sending stocks higher. Broadly, I just don't feel good about this market. Companies aren't hiring. The recovery is hinged on job creation and we're not getting it.

And nothing changed fundamentally, adds Brian Kelly. I’d use any rally to sell, he counsels. I’m bearish.

I don’t agree, counters Terranova. I think the consumer is in much better shape than people think. And as a result I think there are opportunities in the market. I’m a buyer of American Express, Best Buy and EMC or Teradyne .

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CHART OF THE DAY: SECTORS SINCE APRIL TOP

Looking at the different sectors of the S&P, Consumer Staples has performed best since the April 23rd highs, falling only 6%. Meanwhile, energy has the been the real market drag, falling 15%

Here’s the complete list:
Consumer Staples ETF (XLP) –6%
Utilities ETF (XLU) –7%
Health Care ETF (XLV) –9%
Technology ETF (XLK) –11%
Consumer Discretionary ETF (XLY) –12%
Industrial ETF (XLI) –12%
Financial ETF (XLF) –13%
Materials ETF (XLB) –14%
Energy ETF (XLE) –15%

Are any sectors oversold?

I definitely think energy is oversold, counsels Steve Grasso. BP , Halliburton, Transocean and Cameron are all overdone to the downside.

Look at the action in Consumer Staples, adds Jon Najarian, it’s the best performing sector. That suggests to me the consumer isn’t nearly as ‘dead’ as so many investors think. I'd trade accordingly.

Elsewhere, I’m bearish on Treasurys, explains Steve Cortes. Technicals got extremely overdone and the price action was very poor. However that’s a trading call.

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DEAD CAT BOUNCE? COMMODITIES/INDUSTRIALS

Metal and ag names made a strong comeback on Friday, with steel names including US Steel and AK Steel leading the gains.

What's the trade?

If you're looking for commodity related trades I’m bullish Peabody , Steel Dynamics and the OIH, adds Joe Terranova.

And I’d get long RSX for exposure to Russia, says Terranova. It’s a play on oil as well as the euro.



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Trader disclosure: On May 21, 2010, 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 (PFE), (BMO), (SWN), (XCO), (EMC), (FTO), (YHOO), (AXP), (BBY), (TER), (STLD), (THC), (BTU), (AAPL), (DIS), (CVS), (IPSU); Terranova owns (GLD) JUN $115 Calls; Terranova Owns (GLD) June Calls; Terranova Owns (OIH) June Calls; Terranova Owns (PFE); Terranova Owns (RSX); Kinahan owns (C), (BAC), (AKS), (MSFT); Kinahan is short (SPY); Tomasulo owns (VXX); Tomasulo owns VIX calls; Tomasulo owns gold spot futures; Tomasulo owns (VZ); Tomasulo owns (PCLN); Tomasulo owns (V) calls; Grasso Owns (ABK), (BP), (BAC), (BGP), (C), (DYN), (JPM), (LPX), (NDAQ), (DCPA), (ASTM), (PRST); Kelly Owns (CAT) Puts; Kelly Owns (EMN) Puts; Kelly Owns (EXPE) Puts; Kelly Owns (WYNN) Puts; Jon Najarian Owns (BAC), (BAC) Preferred; Jon Najarian Owns (BP); Jon Najarian Owns (C); Jon Najarian Owns (JPM), (JPM) Puts; Cortes Owns (GS); Cortes Is Long Crude Oil; Cortes Is Short U.S. Treasuries

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 (AMKR)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (DBV)
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 (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (DRYS)

For Steve Grasso
Stuart Frankel And Its Partners Own (AMR)
Stuart Frankel And Its Partners Own (BAX)
Stuart Frankel And Its Partners Own (CUBA)
Stuart Frankel And Its Partners Own (DHR)
Stuart Frankel And Its Partners Own (DYN)
Stuart Frankel And Its Partners Own (GERN)
Stuart Frankel And Its Partners Own (GS)
Stuart Frankel And Its Partners Own (HSPO)
Stuart Frankel And Its Partners Own (MERC)
Stuart Frankel And Its Partners Own (NWS.A)
Stuart Frankel And Its Partners Own (NYX)
Stuart Frankel And Its Partners Own (PDE)
Stuart Frankel And Its Partners Own (PFE)
Stuart Frankel And Its Partners Own (PRST)
Stuart Frankel And Its Partners Own (RDC)
Stuart Frankel And Its Partners Own (SYMC)
Stuart Frankel And Its Partners Own (TLM)
Stuart Frankel And Its Partners Own (TRV)
Stuart Frankel And Its Partners Own (XRX)
Stuart Frankel And Its Partners Own (SDS)
Stuart Frankel And Its Partners Own (TBT)
Stuart Frankel And Its Partners Are Short (QQQQ)


For Brian Kelly
Kanundrum Capital Is Short Euro
Kanundrum Capital Is Short Yen
Kanundrum Capital Is Short (USO)
Kanundrum Capital Is Short (XLB)
Kanundrum Capital Is Short (XLF)
Kanundrum Capital Is Short (EXPE)
Kanundrum Capital Is Short (WYNN)
Kanundrum Capital Is Short (IOC)
Kanundrum Capital Is Short (SU)
Kanundrum Capital Is Short (CME)
Kanundrum Capital Is Short (STT)
Kanundrum Capital Is Short (XLF)
Kanundrum Capital Is Short (CAT)
Kanundrum Capital Is Short (AA)
Kanundrum Capital Is Short (DOW)
Kanundrum Capital Is Short (XLK)
Kanundrum Capital Is Short (EMN)
Kanundrum Capital Owns (GLD)
Kanundrum Capital Owns (TLT)
Kanundrum Capital Is Short (DAI)

For Doug Kass
Seabreeze Partners Management Owns (ETFC)
Seabreeze Partners Management Owns (MTG)
Seabreeze Partners Management Owns (C)


CNBC.com with wires

Symbol
Price
 
Change
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DJIA
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S&P 500
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AKS
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ALXN
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BBBY
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BP.
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BTU
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CAM
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EMC
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HAL
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RIG
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RSX
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STLD
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TER
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X
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SPDR NRG SEL
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SPDR CD SEL
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MV OIL SVCS
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