Both the Dow and S&P rose modestly on Monday as investors shrugged off last week's dismal employment data and shifted focus to the Fed meeting on Tuesday.
The central bank is widely expected to renew its vow to keep rates near zero for an extended period.
Markets will watch closely to see if Fed officials are growing more concerned about the recovery or if they indicate any danger of falling into a vicious cycle of falling prices and slowing growth.
"The consensus for now is that the Fed is going to once again ease their quantitative efforts which will give a boost to the otherwise quiet market," says Peter Cardillo, chief market economist at Avalon Partners in a Reuters interview.
How should you position now?
Instant Insights with the Fast Money traders
According to Bespoke, since the zero interest rate policy (ZIRP) was put into effect in December 2008, Fed days have typically been positive for the S&P 500. On the day, the index has averaged a gain of 1.18% with positive returns 85% of the time.
As far as I can tell, the market is set up for disappointment on Tuesday, counters Brian Kelly. Wall Street is pricing in the possibility of additional action from the Fed to revive the economy, especially in the wake of weaker-than-expected jobs report for July.
However, if they don't get that and the statement stays the same -- I think the market sells-off, he speculates.
I expect the Fed will leave its statement unchanged, says Joe LaVorgna of Deutsche. Personally I don’t think the Fed needs to do anything. But in the wake of an unchanged statement I think equities will catch a bid, bonds get hurt a little bit and the dollar rallies.
* Hear more from Joe LaVorgna. Watch the video now
I'll be watching the dollar, adds Tim Seymour. It's been trading against the 200-day to the downside. I think it's oversold and likely goes higher.
The action in the Vix suggests to me that the market wants to go higher, says Guy Adami. However, if I see the Vix back near 24 I’ll feel differently.
GOLDMAN REDUCES ESTIMATES
Meanwhile, Goldman Sachs lowered its year-end forecast for the S&P to 1,200 from 1,250 and reduced its 2011 earnings projection, citing weakening economic forecasts, reminds host Melissa Lee. And they emphasized putting money to work in dividend paying stocks.
What’s the trade?
I’m not typically a dividend investors but I have been looking at dividend yield plays such as Intel, says Brian Kelly.
The one thing I’m concerned about with dividend paying stocks is the Bush tax cuts and whether they're extended to any or all of us after they expire on December 31st, says Karen Finerman. Dividends could have very different implications six months from now.
TOPPING THE TAPE: RESEARCH IN MOTION
Shares of RIM were the big winners on Monday after published reports suggested Saudi Arabia was close to reversing a proposed ban on BlackBerry services.
According to AP, RIM agreed to place BlackBerry servers inside Saudi Arabia and allow the government to monitor messages. Saudi security officials claim the move is critical so the service isn't used by militant groups, however critics argue the government is only trying to further curb freedom of expression.
Meanwhile, the latest web chatter suggests that other nations which have expressed similar concerns including India, Indonesia and the United Arab Emirates may also agree to similar resolutions.
What's the trade?
I think the valuation makes RIM compelling, says Karen Finerman.
RIM was likely oversold on the news, says Pete Najarian on the Halftime Report. With a 10 P/E I like this name. RIM should reach much higher levels. And I can't help but wonder if some larger company would ever have an interest in Research In Motion?
I agree that from a P/E ratio standpoint it seems like an attractive value play, adds Jared Levy but the BlackBerry just isn’t sexy. I was expecting a work of art in the new BlackBerry Torch but it wasn't there. With Android and iPhone making gains, I'm concerned about being long RIM outright. However, I see some potential so I’d buy the stock and sell calls against it.
At a 10 P/E I’d also give RIM some grace, adds Patty Edwards. There are a lot of other names they could kill - such as Nokia .
I like RIM for technical reasons, says Steve Cortes. It appears to be basing. At the same time Apple spacer seems to be topping out.
I’d be taking profits on Apple and putting that money to work in RIM.
* Hear from Baird analyst Will Power. Watch the video now!
TOPPING THE TAPE: MCDONALD’S
Shares of McDonald’s hit an all time high on Monday after the fast food giant said global sales at restaurants open at least 13 months rose 7 percent in July, compared with analysts' expectations for an increase closer to 5 percent.
The company added that new summer drinks in the United States and longer hours in Europe were largely behind the performance.
The strong sales show McDonald's is succeeding in reinventing its menu and image, winning new diners in a weak economy that has hurt rivals, analysts say.
"Over the last several years, they've been very successful at improving the quality of their food," said Stifel Nicolaus & Co analyst Steve West. "They've really invested in their brand."
What’s the trade?
Jim Skinner is just a great CEO, says Guy Adami. But it’s hard to pile in at these levels.
At 16 times I don’t think it’s terribly expensive, says Karen Finerman. I own it.
Months ago I said smoothies would drive sales, says Pete Najarian. But I took profits. However around $70 I’d start nibbling again.
ANALYZE THIS: TRADING THE BUMPER CROP
These are wild times in the wheat pits. It's a bull market for grains and a boon for the Midwest.
But how much longer can the trend continue?
We’re looking at the best several years that American farmers have had in a long while, says strategic investor Dennis Gartman. Is this the end of the bull market in wheat and grains? No I think it’s just the beginning.
If you're looking for a trade, I suspect Kellogg , General Mills and some of the meat producers are going to see their imput costs go up.
Get more insights from Dennis Gartman. Watch the video now!
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Trader disclosure: On Aug 9, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Finerman owns (AAPL); Finerman's firm owns (ARM); Finerman & Finerman's firm owns (BAC); Finerman’s firm owns (BBY); Finerman's firm owns (LEA); Finerman’s firm owns (KFT); Finerman & Finerman's firm owns (JPM); Finerman & Finerman's firm owns (RIMM); Finerman’s firm owns (TSX); Finerman’s firm owns (GYMB); Finerman’s firm owns (PLCE); Finerman's firm owns (WMT); Finerman's firm owns (DAN); Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman’s firm owns S&P 500 puts; Finerman’s firm owns Russell 2000 puts; Pete Najarian owns (HPQ) call spread; Pete Najarian owns (RIMM) call spread; Pete Najarian owns (GS) calls; Pete Najarian owns (V) call spread; Cortes owns (CIB); Cortes owns (FCX); Cortes owns (OAS); Cortes owns (QQQQ); Cortes is short US Treasuries; Cortes is short the Japanese Yen; Stutland is long (TLT) and short calls; Stutland owns US treasuries
For Brian Kelly
Accounts managed by Kanundrum Capital own (INTC)
Accounts managed by Kanundrum Capital own (RIMM)
Accounts managed by Kanundrum Capital own (ECA)
Accounts managed by Kanundrum Capital own (JPM)
Accounts managed by Kanundrum Capital own (C)
Accounts managed by Kanundrum Capital own (TLT)
For Patty Edwards
Edwards owns (SPY) for clients
Edwards owns (QQQQ) for clients
Edwards owns (HPQ) for clients
Edwards owns (QCOM) for clients
Edwards owns (AAPL) for clients
Edwards owns (VZ) for clients
Edwards owns (C) for clients
Edwards owns (BAC) for clients
Edwards owns (MCD) for clients
For Joe LaVorgna
For Will Power
Robert W. Baird & Co. and/or its affiliates expect to receive or intend to seek investment banking related compensation from (RIMM), (MOT), (NOK), (GOOG), (AAPL) within the next 3 months.
For David Bank
RBC Capital Markets is currently providing The Walt Disney Company with non-securities services
RBC Capital Markets has provided The Walt Disney Company with non-securities services in the past 12 months
For Kurt Nelson
SummerHaven Index Management is the creator and licensor of the SDCI to the U.S. Commodity Index Fund, and SummerHaven Investment Management is the trading advisor to USCI
For Eric Jackson
Ironfire Capital is long (MSFT)
For Nishu Sood
(DHI), (RYL) are investment banking clients of Deutsche Bank
(DHI) has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services
Deutsche Bank has received non-investment banking related compensation from (MTH), (RYL) within the past year.
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