Nervous investors found themselves all the more rattled on Monday after Bank of America said October could be scary – and we’re not just talking Halloween.
The bank’s chief US market analyst Mary Ann Bartels said with the S&P still struggling in the 1130 – 1150 range some very negative signs are emerging.
”The short-term price momentum indicators, the 14-day stochastic and RSI, are weakening sending a negative divergence signal,” Bartels writes, "while volume remains low calling into question the rally.”
That outlook is particularly surprising considering a positive September suggests the S&P should make additional gains through the end of the year, according to history. In fact that’s something Fast Money wrote about at length a short while ago. (Click here to go to "Rare Positive September Good for Outlook".)
However Bartels addresses that issue in her note but still says “October may bring more of a "Trick" to investors than a "Treat". We remain defensive expecting a correction that could be up to 10%-12%.”
How should you trade it? The Fast Money gang can't quite get on board with BofA, at least not right away.
Instant Insights with the Fast Money traders
"I'm a buyer of the market with a tight top," says Steve Grasso of Stuart Frankel. However if the S&P breaks below 1130 get out.
“I’m not seeing corresponding action (to BofA's call) in the options world,” adds OptionMonster Pete Najarian. “I’d expect to see the Vix explode -- to 40 -- if (that kind of sharp downturn) were to happen. That would catch a lot of investors off guard.”
"I'm also a buyer of stocks into the close," adds JJ Kinahan of TD Ameritrade.
THIS STOCK A 'MORGAN STANLEY BEST IDEA', REALLY?
Investors are scratching their heads after Morgan Stanley called one stock a ‘best idea’ with estimates 40% above consensus.
We’re talking about the bank's call Monday in which analyst Adam Jonas initiated coverage of Ford with an 'Overweight' rating and a $20 price target citing strong revenue opportunities.
Considering the stock has trouble getting above $13, the call raised eyebrows to say the least.
Fast Money was so intrigued by the call we invited Jonas to join us on Fast Money’s Halftime Report.
He told us there are three factors behind his lofty price target – which is, again 40% higher than consensus. They are:
- Strong US volume, 14 million units in 2011 (1 million above consensus)
- Less negative on Europe, Ford’s second biggest market
- Ford credit, extremely low loss ratios and a collapse in funding costs.
"These factors help take the company from $5 billion of net auto debt to $16 billion of net cash by 2016, Jones says. "If we're right Ford should achieve an investment grade credit rating and resume a dividend payment far sooner than the market anticipates."