On Thursday investors were wondering if stocks had put in a floor after the S&P 500 held an important technical level despite heaving selling at the open, which pushed the broad-based index down almost 1 percent.
Specifically, stocks bounced back above the 1,130 mark - a level of resistance in June and August. Now investors are wondering if that level -- once resistance -- has now become support. In other words has the market found its bottom?
What should you make of it?
Instant Insights with the Fast Money traders
I don’t think investors realize what critical levels we’re at on the S&P, says Guy Adami. Personally, I was surprised by the bounce. We’re at a crossroads. We’re either going to explode higher or trade a lot lower. I’m bias to the downside.
We’re range bound right now; we’re stuck between 1110 and 1150, adds Steve Grasso. We kissed 1150 a few days back and then we started to retrace the move. It’s bullish that the S&P held at 1130. However, if we retrace the whole move it’s very negative. And if the S&P crosses below 1116, the 200-day, bail out, he says.
For what my opinion is worth, my bias is higher, Grasso adds. Looking at fundamentals, the potential for a GOP win in the House should be good for stocks.
TOPPING THE TAPE: TECH
As investors grapple with the future of this rally, there’s no denying that tech has been performing remarkably well, lately.
On Thursday, strength in the sector was generated by better than expected earnings from Red Hat as well as a note issued by widely followed analyst Gene Munster who increased his price target on Apple to $390 from $371 citing strength in the iPad.
How should you be positioned now?
If you want to be long in this market, which I don't, I think one of the very few places to play is technology, says Steve Cortes.
Tech stocks are structural change stocks, adds Guy Adami. Blockbuster is struggling and a company like Netflix wins to that. Amazon is also a structural change stock as people shop online.
My clients are buying marquis names in tech and staying with it, says Steve Grasso.
There's no doubt about it. A whole bunch of tech stocks are jumping while the rest of the market swoons, muses Jon Najarian. Check out the action Riverbed and F5 Networks .
MARKET BUZZKILL: BANKS
Financials continued to be a major market buzz kill after BofA Merrill Lynch lowered third-quarter earnings estimates on Goldman Sachs and Morgan Stanley, saying the "pure" capital markets firms would be most impacted by the seasonal slowdown in trading volumes.
The brokerage joins Goldman Sachs, which earlier in the day issued a note saying the slowdown in trading may last beyond the summer and continue for the next few quarters.
What’s the trade?
There’s a structural change going on in the financial sector, reminds Guy Adami. Volume is drying up. It’s hard to feel bullish about this sector in these circumstance. If you believe the S&P is near the upper end of its range it’s probably time to go short.
Bank of America tends to fail at $14 while the XLF fails at $15, adds Steve Cortes. These are the levels to be short against. I think lingering housing exposure and the flattening yield curve are both huge problems for the financials.
I don’t know that the financials are in trouble so much as feeling pain, says Jon Najarian. I think the trade is wait and be patient but then buy the best banks in the space. I’d put UBS and HSBC on the radar. If they don’t trade below the 200-day, I’d buy on the pullback.
FOR PROFIT STOCKS SURGE
For profit education stocks such as Apollo and Devry rallied on Thursday perhaps due to a note from Signal Hill that suggested stocks in this space had bottomed, says Fast Money host Melissa Lee.
What’s the trade?
If you want beta you can play here, says Guy Adami. These are typically not one day trades so you may be able to ride it.
POLL OF THE DAY
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Trader disclosure: On Sept. 23rd, 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; Jon Najarian; Jon Najarian owns (AA); Cortes is short the Australian Dollar; Cortes is short the Euro; Cortes is short (XLF); Cortes is short (BAC); Cortes is long U.S. Treasuries; Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST)
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