Both the Dow and S&P 500 finished in negative territory on Tuesday for the 4th time in as many days.
The S&P is now trading at its lowest level in seven weeks and the Dow slipped below the psychologically important 10,000 level before paring some of those losses.
When will the selling stop?
How should you position now?
Instant Insights with the Fast Money traders
Looking at the broad market, there's a tremendous amount of economic data coming over the next two weeks including durable goods orders, GDP, China PMI, ISM and more, explains Joe Terranova. If it disappoints the market it could be looking at strong headwinds.
I'm concerned about volume, says top ranked analyst Jeff DeGraaf of ISI Group. It's not unusual in a secular bear market to have volumes contract. It's par for the course. My concern is that we're seeing strong volumes on weakness and light volume on strength. That's a bearish sign.
We're in a negative trend and oversold conditions need to be much deeper before they hold. We're not anywhere close to having a modest oversold condition. I expect the S&P to break 1010. We probably trade down to 960, DeGraaf says.
It seems to me that more investors are turning bearish here in the US, muses Tim Seymour. And the economic data is telling a terrible tale domestically. But globally business is not falling apart. I think the play is long global multi-nationals such as McDonald’s , Coke and Unilver .
I’m a contrarian and all the bearishiness in the market makes me bullish, says Steve Cortes. I think this is a buying opportunity. We’re nowhere near the July lows of 1010 – in fact we're still 40 S&P points away.
We’ve been range bound for weeks and weeks and at some point valuations will matter, adds Karen Finerman. I took some of my hedges off on Tuesday. And if you’re looking for a trade I established a long position in BP on Tuesday. The stock is down $6 from where they plugged the well. I recognize the company is facing troubles but I like the valuations.
In the aftermarket, the euro ticked lower after Standard & Poor's cut its rating on Ireland to AA- minus and assigned the country a negative outlook, saying it expects Ireland faces substantially higher costs to support its ailing financial institutions.
What's the takeaway?
The concern now is France, explains Tim Seymour. Will they also get a downgrade. That's a much bigger concern? If France, the UK or Germany falls out of bed investors will get very nervous.
Gold closed with gains on Tuesday as investors turned to this safe haven trade in the wake of lousy housing data.
How should you trade it?
I think the best play in this market is long gold, Terranova adds. It continues to prove itself both fundamentally and technically. It held the 50-day down at 1210.
To the surprise of many investors, the Housing ETF traded higher on Tuesday afternoon (before closing lower), despite data that showed existing home sales dropped a record 27% in July -- the lowest since May 1995.
What’s the trade?
I think this move is about shorts being squeezed out, muses Pete Najarian on the Halftime Report. I doubt we’re seeing new money flow into these names. But I wouldn’t be short.
Although I think housing continues to face macro-headwinds for the near term I think we’ve heard the worst news, adds Steve Cortes.
If you think we’re looking at another leg down in housing prices I’d be more concerned about banks, adds Tim Seymour.
MARKET BUZZKILL: BANK OF AMERICA
Shares of Bank of America touched another 52-week low, just one day after BofA CEO Brian Moynihan snapped up 30,000 shares of his company for about $13 each.
Should you follow him in?
I’m not sure if BofA is a value trade or a value trap, says Pete Najarian on the Halftime Report. The XLF just can’t seem to rally. I’m noticing in the options market investors expect banks to remain flat.
10-YEAR YIELD BACK TO LOWEST SINCE MARCH 2009
U.S. Treasuries advanced on Tuesday, sending yields to new lows as fears about the economic outlook sent investors hunting for safe returns in a period of tentative growth.
"Risk aversion is causing investors to take money out of their volatile assets and put it into income assets," says Robert Tipp, chief investment strategist for Prudential Fixed Income, in a Reuters interview. And it’s not just happening in the US. "This is a global trend," Tipp adds.
How should you position?
I do not believe in the Treasury story, says Joe Terranova.
ANALYZE THIS: UNDERWATER FOREVER?
A widely followed economist thinks the US is in trouble – real trouble. In a note published on Tuesday, Gluskin Sheff economist David Rosenberg suggested that positive gross domestic product readings and other mildly hopeful signs are masking an ugly truth: The US economy is in a 1930s-style Depression.
And on Tuesday’s Halftime Report he told the desk in a live interview, “We're talking about real psychological trauma here much like you had in the 1930's.”
Looking at history, Rosenberg argues that the Great Depression also had its high points, with a series of positive GDP reports and sharp stock market gains.
But then as now, those signs of recovery were unsustainable and only provided a false sense of stability, said Rosenberg.
Of course we’d be remiss not to note that Rosenberg is a renown bear and has been making somewhat gloomy prognostications for quite some time.
Nonetheless, the similarities he’s discovered between the 1930’s and today are certainly thought provoking, if not downright worrisome
Is Rosenberg right - will be underwater forever?
For insights we turned to Barry Ritholtz of Fusion IQ. Find out why he thinks investors who subscribe to Rosenberg's thesis could miss a buying opportunity coming as soon as the end of the year!
* Check out the entire conversation. Watch the video above or click here!
Learn more. Hear from Rosenberg himself on the Halftime Report– watch the video to your left!
Click here to go to “Economy Caught in Depression, Not Recession: Rosenberg”
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Trader disclosure: On August 24th, 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), (GE), (POT); Cortes is long (FCX); Cortes is long (SFD); Cortes is long (BHP); Cortes is long Crude Oil; Cortes is long Australian Dollars; Finerman’s firm owns (BAC); Finerman’s firm owns (JPM); Finerman’s firm owns (BKS); Finerman’s firm owns (RIG); Finerma’s firm owns (BP); Terranova owns (AXP), (C), (BMO), (V), (POT), (OXY), (GLD), (FCX), (APA), (SU), (XBI), (MRVL), (TBT)
For Tim Seymour:
Seygem Asset Management is short (FCX)
For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
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For Patty Edwards
Edwards owns (BAC) for clients
Edwards owns (C) for clients
Edwards owns (CAT) for clients
Edwards owns (FCX) for clients
Edwards owns (GE) for clients
Edwards owns (GLD) for clients
Edwards owns (JNK) for clients
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For Joseph Parkhill
Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Dollar General Corporation.
Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: Dollar General Corporation.
Morgan Stanley & Co. Incorporated makes a market in the securities of Dollar General Corporation.
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