Is S&P About To Retest 1040 Support?
Stocks fell in yet another late-day selloff on Tuesday after unexpectedly poor housing figures sent jittery investors running for the exits.
New data showed home sales fell 2.2 percent month over month, that’s a far cry from expectations of a 5.5 percent gain.
Technical action also dragged down sentiment. The S&P 500 broke below its 200-day moving average, which had been a level of support in the last few days.
How should you be positioned now?
Instant Insights with the Fast Money traders
As far as I’m concerned the technicals are in tact, says Guy Adami. We said the S&P would over-correct to the upside and trade up to 1130 and then turn lower -- and it did. Now we’re likely in the next leg lower. We have to see what happens as the S&P trades down to the lower end of the range – around 1040 – will it hold next time we test it?
The patterns in the S&P suggest that support will not hold this time, adds Oppenheimer's Carter Worth. My persumption is we break lower. I think we go to 980. I don't think a great crash is coming but we are clearly entering a period when the downside should be the focus of investors. (Click here for Carter Worth's full technical analysis)
I also expect weakness, adds Brian Kelly. Fundamentals are anything but in tact. The recession officially ended about 12 months ago; housing and employment should be in an upturn and they’re not. And my market 'tell' – railcar loadings of lumber – have been falling.
I'm concerned about a downdraft too, adds Pete Najarian. We lost copper , coal and the financials on Tuesday. And the Vix spiked. As they say in football flags are on the play. I think investors should sell into strength.
However I also think this is a good time to make a shopping list, Najarian adds. Choose names and decide at what levels you should get back in. Personally I have UNP and CNI on my radar.
I wish we never got that news of a revaluation out of China, says Joe Terranova. It shows us just how weak the market is. The price action since yesterday has been horrible. There's significant pressure on the market.
We’ve had 11 straight up days so there were plenty of reasons for the market to pullback on Tuesday, counters Tim Seymour. Tuesday’s market action doesn’t worry me.
But what does worry me are signals that the rest of the world is about to pullback. I see austerity measures and governments around the world reigning in spending. We may be looking at a Hoover-moment.
HOUSING HEADACHE: DOUBLE DIP AHEAD
As we mentioned above new data suggests the housing market may be worse than feared. Analysts had predicted a flurry of buying ahead of the June 30th homebuyers tax credit deadline, but those predictions didn’t pan out.
What must you know?
The problem in housing is that homeowners are underwater and even if they want to buy a less expensive house they can’t because they can’t sell the one they’re in, explains strategic investor Dennis Gartman.
As a result, I think we may be looking at a double-dip in housing, Gartman speculates. And I think the trade is shorting the smaller regional banks that have a large percentage of mortgages on their books and buying big banks that don’t.
MARKET BUZZKILL: COMMODITIES ROLLOVER
Oil and metals pared gains on Tuesday as investors rethought their commodity trades after new information out of China suggested the yuan’s appreciation would be far slower than previously anticipated.
If the yuan gets stronger the cost of U.S. dollar-denominated commodities that China imports—such as oil, iron ore, copper, coal and platinum—is set to become slightly cheaper for people and businesses based in China.
What must you know?
As far as I can tell money managers are stepping back and taking a second look at energy investments, explains Joe Terranova.
TOPPING THE TAPE: APPLE
Apple provided the one ray of hope for bulls in an otherwise bleak market. Once again the company wowed Wall Street this time by selling 3 million iPads in less than 3 months.
What’s the trade?
The stock has made such a run I’d take profits, counsels Pete Najarian. And if you’re very bullish and still like Apple at these level I’d play it with options so you can limit your risk. Perhaps own the 275 calls and short the 285 calls.
We’ve spent a lot of time on Fast Money saying Apple would tumble if the market tumbled – but that didn’t happen, muses Tim Seymour. I think Apple is becoming a defensive play.
AFTER HOURS ACTION: RED HAT
After the bell, business software company Red Hat released results which showed quarterly revenue and profit both rose about 20 percent from a year earlier, helped by an improving economy and recovering corporate spending.
But shares fell more than 3 percent in after-hours trading on Tuesday as the key earnings figure was merely in line with expectations.
What’s the trade?
I can’t help but wonder - if the market is turning lower - are valuations becming a concern? At 35 times forward earnigns I'm not sure RedHat valuations make sense, says Guy Adami.
TICK BY TICK: MORATORIUM LIFTED
Once again developments in the gulf made headlines, this time a federal judge struck down the Obama administration's six-month ban on deepwater oil drilling saying the government rashly concluded that because one rig failed, the others are in immediate danger, too.
Challenging the "immense scope" of the moratorium, Judge Martin Feldman said the companies would likely succeed in showing that it was "arbitrary and capricious."
Obama had hoped the ban would provide his administration enough time to ensure that deep-sea wells were operating safely. The oil companies argued that the ban was unfair and had forced a halt to the operations of 33 offshore rigs.
The White House promised an immediate appeal.
"The president strongly believes ... that continuing to drill at these depths without knowing what happened does not make any sense," White House spokesman Robert Gibbs said on news of the judge's ruling.
What's ahead for the sector?
Find out from Rob McKenzie of FBR. Click here to watch the video now!
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Trader disclosure: On June 22, 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 (IPSU), (BX), (AGU), (PFE), (TER), (GMCR), (RSX), (TER), (AXP), (KO), (KR), (COST), (AMZN), (TEVA), (BMO), (DIS), (XCO), (SWN), (GMCR), (IPI), (SU), (XOM), (RDS.A), (COP), (OXY), (V), (FXB); Terranova owns (GLD) July 120 puts; Kelly is short (GS); Kelly owns (BP) puts; Kelly owns (FCX) puts; Kelly owns (GLD); Kelly owns (GDXJ); Jon Najarian owns (MOS) and short calls; Jon Najarian owns (SCCO) and short calls; Jon Najarian owns (JEF) and short calls; Jon Najarian owns (AAPL) call spreads; Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Pete Najarian owns (PFE); Pete Najarian owns (CELG); Pete Najarian owns (SD)
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)
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Funds Managed By Dennis Gartman Are Long Canadian Dollar, Australian Dollar
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Sandler O'Neill Served As Financial Advisor To Investor Group That Agreed To Buy First Republic Bank From (BAC)
Sandler O'Neill Recvd. Inv. Bank. Comp. From (C), (JPM), (BAC) In Past 12 Mos.
(JPM), (BAC) Was An Investment Banking Client Of Sandler O'Neill In Past 12 Months
Sandler O'Neill Expects To Receive or Seek Inv. Bank. Comp. From (BAC), (BK), (JPM), (C), (NTRS) In Next 3 Mos.
(BAC), (C), (JPM), (MS), (BK), (NTRS) Are Clients Of Sandler O'Neill
Sandler O'Neill Has Received Non-Inv. Bank. Comp. From (C), (JPM), (BAC)
(GS) Is A Non-Inv. Bank. Client Of Sandler O'Neill
Sandler O'Neill Is A Market Maker In (NTRS)
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In Past 12 Months (GOOG), (AMZN), (EBAY), (YHOO) Are Or In Past 12 Months Were Clients Of Citigroup Global Markets (Non-Investment Banking, Securities-Related Services)
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