Halftime: Next Stop, S&P 1200?
New signs emerged on Tuesday giving bullish investors more reasons to believe the S&P intends to march right up to 1,200 before Election Day.
Looking at fundamentals, the latest data showed the pace of growth in the U.S. services sector accelerated more than forecast last month.
Also, The Bank of Japan said it will pump more funds into that nation's struggling economy which investors took as a sign that Ben Bernanke is more likely to move ahead with something similar here.
That sent the dollar lower and resource trades higher.
But perhaps most bullish was the technical action in the market. The S&P broke above 1,150 a key level and point of strong resistance. Currently, the S&P 500 is trading at its highest level since mid-May.
How should you position now?
Instant Insights with the Fast Money traders
I think there’s further upside in equities, says Joe Terranova largely because of continued strength in Treasurys. Although that may seem counter-intuitive, I take bond market strength as a sign investors don’t trust the move in equities yet and as a result I suspect they will get left behind. Ultimately I expect to see more money rotate out of Treasurys and into stocks - driving S&P gains.
Looking at tehcnicals, holding above 1150 is impressive and telling, says Jon Najarian. 5 of the last 6 sessions the S&P touched that level and failed. Staying above that level will be key to bringing in those douting Thomases Joe Terranova referenced. Also staying above that level will probably trigger short covering.
If you think the rally is being propelled by a weaker dollar, I’m not of the belief that QE2 will have as much impact as the market expects, says Steve Cortes. There’s been a lot of commentary from the Fed presidents that suggest the central bank doesn’t want to make a major move.
Strategic Investor Doug Kass shares that opinion. He’s very skeptical of the rally. Click here to go to Doug Kass: 'Toxic Combination' Threatens Sept. S&P Gains.
When you look at the technicals in the dollar it looks oversold, muses Patty Edwards. As a result I’m long Fluor, Chicago Bridge and Iron and other multinationals that bring dollars back into the United States.
DOLLAR STILL WINNING DEBASE RACE
As we mentioned above the dollar dropped Tuesday with forex feuds dominating the headlines: Europe is calling for a yuan revaluation, Japan lowered its interest rates, and Brazil doubled taxes on money going into fixed-income.
How should you trade?
The cross in the dollar yen on Tuesday is right where it was a few weeks ago when the BOJ first intervened and tried to knock the yen down, muses Steve Cortes. That tells me the market is rejecting efforts to devalue the yen. As a result I’d short Toyota and Sony and buy US companies against them.
GOLD HITS RECORD HIGH ABOVE $1312 / OIL APPROACHING $82
Gold was a beneficiary of the weaker dollar Tuesday with the precious metal hitting new record highs again. Also silver, copper and palladium all gained.
Meanwhile, oil bulls pushed the price of crude above $82 a barrel.
What’s the trade?
I think we see more upside in energy and in the commodity space broadly, says Joe Terranova.
TOPPING THE TAPE: BANKS
Banks led the bounce Tuesday after J.P.Morgan Securities raised its third-quarter earnings forecast for large U.S. banks, including Bank of America and Fifth Third Bancorp , citing strong mortgage banking revenue and better-than-expected net interest income.
"We expect core mortgage production revenues to benefit primarily from sharply higher origination volumes and gain on sale spreads in the third quarter," analyst Vivek Juneja said.
Juneja raised Bank of America's third-quarter estimate to 15 cents a share from 10 cents and Fifth Third's estimates to 16 cents from 1 cent.
JP Morgan also raised PNC Financial Services estimate to $1.27 a share from $1.09, Wells Fargo & Co's estimate to 56 cents from 47 cents and for SunTrust Banks forecast a profit of 2 cents a share, from its prior view of a loss of 27 cents.
How should you position now?
In this space, I like the super-regionals a lot but I like the trading banks better, says Jon Najarian.
I think the play is long exchanges, adds Joe Terranova.
I’m on the other side of that trade, says Steve Cortes. Not until the XLF can break above 15 will I be anything but bearish.
MARKET BUZZKILL: AMERICAN EXPRESS
American Express was the only Dow member in the red Tuesday with investors feeling cautious after the Department of Justice filed a civil lawsuit alleging its merchant rules are 'anticompetitive'.
What does this charge might mean for the company, which has decided to fight it out in court.
Get insights from Sandler O'Neill analyst Michael Taiano. Watch the video above.
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Trader disclosure: On October 5th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Steve Cortes is short (XLF); Steve Cortes is short (BAC); Steve Cortes is long German Bonds; Steve Cortes is short EUR’ Steve Cortes is short Mex. Peso; Jon Najarian is long & has sold calls in (HD); Jon Najarian is long & has sold calls in (COST); Jon Najarian is long & has sold calls in (GS); Jon Najarian is long & has sold calls in (MS); Jon Najarian is long (STEC) calls; Jon Najarian is long (MOS) calls; Jon Najarian is long (ERTS) calls; Jon Najarian is long (COCO) calls; Patty Edwards is long (GLD), (HD), (PGM), (COST), (BMO), (MSFT); Joe Terranova is long (EOG), (APA), (AAPL), (OIH), (VRTS), (XBI), (ARUN), (IBM), (XBI), (C), (ORCL), (PEP), (OXY), (SU), (JOYG), (RIG), (IBM), (HES), (RSH), (UPL)
For Sasa Zorovic
Janney Montgomery Scott may seek comp. for inv. banking services from (MSFT), (AAPL), (ORCL)
Janney Montgomery Scott is a market maker in (MSFT), (AAPL), (ORCL)
For Michael Taiano
Sandler O'Neill expects to receive or intends to seek compensation from American Express Co. for investment banking services in the next three months.
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