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Halftime Pt 1: Market ‘Tell’ Suggests S&P About To Zoom?

Frustrated investors are trying to make sense of Thursday’s S&P action after the index rallied on better than expected jobless claims but then pared gains and turned negative in the afternoon.

The bulls and bears then scoured the market for any kind of signal to suggest whether the next big move will be lower or higher.

Amid all the market noise, the Fast Money desk may have found a significant market ‘tell’.

What must you know?

Instant Insights with the Fast Money traders

I’m watching the silver/gold ratio, explains Steve Cortes of Veracruz. Silver is starting to outperform gold over the past few days and historically that correlates very positively to the S&P.

When silver starts to outperform gold it suggests both industrial activity is picking up and the fear trade is receding.

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That’s because silver is an industrial metal as well as a precious metal, he explains.

As you can see from the chart, the action is typically very predictive of the S&P.

Adding to the bullish sentiment, the silver gold ratio is at its August highs which suggests to me the S&P should also move toward its August highs -- quite a way higher from here.

And to support my thesis I’m watching copper and ag stocks which are also performing well, again signs that activity is starting to pick up.

I’m cautious, counters Brian Kelly of Kanudrum. It’s cheaper to borrow silver than it is to borrow gold and investors may be doing that to use silver as collateral for a loans. If that accounts for the recent outperformance then the move in silver is not a sign of increased industrial activity.

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TOPPING THE TAPE: TRANSPORTS

The traders are also keeping an eye on transports -- particularly the rails with CSX and UNP sharply higher in an otherwise flat market.

What’s the trade?

I’d be a buyer of rails on a pullback, counters Steve Cortes. The action above plays right into my theory that the move in the Silver/Gold ratio signals the economy is starting to pick up.

Although the gains could signal a little manufacturing pick up I wouldn’t get overly-excited, counters Patty Edwards. I'd take a wait and see approach


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OIL BOUNCES OFF SUPPORT

It appears oil may have found support with the price of crude rebounding from near-3 month lows bouncing off the $70 support level.

What’s the trade?

I’m bearish oil because if we see China slowdown more it will hurt oil, says Brian Kelly. But I wouldn’t short the spot price of crude, he says. I would however short the Russia ETF because their economy is heavily exposed to oil.

I’m long oil and think the price action in crude over the past few days is terrific, counters Steve Cortes. In fact, I’m looking to add to my position.

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JOBS, JOBS, JOBS.

Few things seem to matter more to this market than jobs yet investors just can’t agree how to interpret the latest numbers.

On Thursday new data showed weekly jobless claims declined more than expected to a seasonally adjusted 473,000 in the latest week.

What should you make of it?

I think lower jobless claims are important news, muses Steve Cortes. I’m not saying that the labor market is getting better but the results could mean things aren’t getting worse.

After last week's disappointing figure, today's number is certainly a relief, but it doesn't change the fact that it's still very elevated at this point of an economic expansion, counters Peter Boockvar, of Miller Tabak. The labor market still remains very sluggish, with businesses still reluctant to hire and take risk. In fact, the 4-week average of jobless claims has made a worryingly sharp move higher recently.

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UNUSUAL ACTIVITY: GOLD

JJ Kinahan spotted unusual activity in the gold ETF.

Kinahan has spotted a large buyer of the Sep 118-112 put spread in the GLD – that is a buyer of the 118 puts and seller of 112 puts. That suggests to Kinahan that a big investor expects to see a gradual sell-off in gold but that the ETF will find support around 112.

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TRADING THE GLOBE: MEXICAN PESO

Mexico's peso firmed on Thursday after new U.S. claims for unemployment benefits fell more than expected last week, easing concerns about a weak labor market in the United States.

What's the trade?

I’d short Mexico’s peso, says Brian Kelly. The US buys 80% of Mexico’s exports and if we see continued economic weakness domestically I see significant downside to this currency.


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Trader disclosure: On Aug 26, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Cortes Owns (FCX), (BHP), (SFD), (BMO), (TD), (BNS); Cortes Is Long Crude; Cortes Is Short Yen; Kinahan Is Short (SPY); Kinahan Owns (TD), (HD), (BP)

For Patty Edwards:
Edwards Owns (SPY) For Clients
Edwards Owns (QQQQ) For Clients
Edwards Owns (FCX) For Clients
Edwards Owns (HPQ) For Clients
Edwards Owns (AAPL) For Clients
Edwards Owns (GLD) For Clients
Edwards Owns (JCG) For Clients
Edwards Owns (TIF) For Clients
Edwards Owns (WDFC) For Clients
Edwards Owns (HD) For Clients
Edwards Owns (PGM) For Clients

For Brian Kelly
Accounts Managed By Kanundrum Capital Own (GLD)
Accounts Managed By Kanundrum Capital Own (GDXJ)
Accounts Managed By Kanundrum Capital Own (TBT)
Accounts Managed By Kanundrum Capital Are Long U.S. Dollar
Accounts Managed By Kanundrum Capital Are Short (IAI)
Accounts Managed By Kanundrum Capital Are Short (XLF)
Accounts Managed By Kanundrum Capital Are Short Peso
Accounts Managed By Kanundrum Capital Are Short Euro
Accounts Managed By Kanundrum Capital Are Short Pound

For Erika Maschmeyer
Robert W. Baird & Co. Is A Market Maker In (JCG)


CNBC.com with wires.

Symbol
Price
 
Change
%Change
S&P 500
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TRAN
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CSGN
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GLD
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RSX
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UNP
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