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Kass: Market Range Bound With Defined Floor & Ceiling

Wednesday, 21 Jul 2010 | 6:20 PM ET

Does it seem like recent market moves have lacked conviction, lately? Widely followed strategist Doug Kass of Seabreeze thinks he knows why!

”It’s a Roy Rogers market,” he tells the Fast Money desk. "The market is like that old cowboy song Home on the Range," he says.

In other words stocks are range bound. (Get it Roy Rogers, cowboy, range?!)

Kass is having some fun, but he’s really quite serious about the strong resistance as well as the considerable support that investors should expect in the days and weeks ahead.

Bull Market or BS?
Whether investors should buy or sell into FinReg, with Doug Kass, Seabreeze Partners Management.

On the upside Kass expects stocks will be capped by a few fundamental factors
- the ambiguity of the current soft economic patch
- the emergence of higher marginal tax rates
- more costly regulation
- imbalances in the budgets of state and local governments.

However, on the downside it’s going to be supported by the low probability of a double dip. That's demonstrated by easing financial conditions, improved liquidity spreads and a slew of other signals he listed when he talked with the desk on July 7th.

Of course, what really maters is the range – so how high and how low should you expect the market to move?

“Between 1025 and 1150 on the S&P,” Kass says, “between 11 times and 13 times forward earnings”

What’s the trade?

Kass suggests gaming it with options. “I’d sell straddles and strangles,” he says. ”We’re not going to have fast money we’re going to have boring money.”

* It’s interesting to note that Kass says if he's wrong, he believes the bias in the market is higher largely due to pension funds that could skew into the stock market “on a hint the bond market is entering a correction.”

What do you think? We want to know!


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Trader disclosure: On July 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; Seymour owns (AAPL), (BAC), (FCX), (GOOG), (MOS), (SBUX); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Terranova owns (EMC), (CREE), (CRCM), (LRCX), (COP), (AXP), (BMO), (CSX), (PEP), (CVS), (GS), (PCP), (C), (APA), (FCX), (JOYG), (MMM), (MOS), (GLD), (UAUA), (WYNN), (GOOG), (BBY), (SU), (KOL); Pete Najarian owns (C) calls; Pete Najarian owns (CRUS) calls; Pete Najarian owns (ISRG) call spreads; Pete Najarian owns (DD) call spreads; Pete Najarian owns (GNW) call spreads; Pete Najarian owns (V) call spreads; Pete Najarian owns (CNI) call spreads; Pete Najarian owns (TEVA) call spreads; Pete Najarian owns (PFE) call spreads; Kelly owns (BP) puts; Kelly is short (GS)

For JoeTerranova
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Doug Kass
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Mike Khouw
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