Nervous investors spent Wednesday trying to figure out if recent weakness in some commodities was a blip on the radar or a sign of ominous things to come.
With oil and other commodities largely tied to China’s growth, the issue of Beijing tightening again landed front and center. Adding to the headwinds, the dollar gained against a basket of currencies - a trend that's been bearish lately.
Technicals weren’t any more optimistic with the traders pointing to string of somewhat negative patterns.
What should you be watching? How should you position now?
Instant Insights with the Fast Money traders
Todd Gordon of Forex.com is cautious. “If you look at the chart of Shanghai A-shares overlaid ontop of the S&P 500 (to your left) – you can see the last two of the three major turning points were led by China,” he says.
But take a look at the very end of the chart. ”Right now China is sitting on lows while the S&P is on highs. Technically that’s a huge cause for concern.”
Steve Cortes of Veracruz is watching the technicals in gold , which he finds bearish. “We may be seeing a double top," he says.
(Looking at the gold chart) the precious metal was not able to hold above its November high of $1425. A weak close confirms a double top and I’d expect a race for the exits into year’s end.”
Todd Gordon turns to the forex markets not only to confirm Cortes’ thesis but to extend it.
“It seems to me the stronger dollar is at the root of the commodity sell-off,” Gordon says, “And I only see it getting stronger.”
He makes that forecast because bond prices are falling faster in the US then they are in Germany. “That means US interest rates are rising faster than German interest rates. That should drive dollar strength, euro weakness, and in turn will drive more commodity selling.”
If you watch Fast Money regularly you know that Brian Kelly of Kanundrum put his bear suit in mothballs are few weeks back. And he remains optimistic.
He’s looking at the bond market – and the rising yields. “The question becomes - what is the bond market telling us,” Kelly says. “I take it as a signal that the economy is getting better - a little inflation is coming and currently yields are too low.”
OptionMonster Jon Najarian shares the enthusiasm. Although other traders raised concerns about the tax cuts getting stuck in the House, Najarian doesn’t think that’s likely. And when they pass he’s a buyer of the market.
FINANCIALS TOPPING THE TAPE
The traders are closely watching the action in financials with Bank of America among the bright spots in the Dow.
What’s the trade?
If money comes out of bond funds and goes into equities, then I think it will go into US equities, says Brian Kelly. The US looks like the best place to invest and that should favor the US brokers.
I agree that US banks and brokers are to be bought, adds Steve Cortes. I’d play it with Goldman, Morgan and Jefferies.
TECH TOPPING THE TAPE
Tech was one of the best performing sectors on Wedneday with Intel higher after CEO Otellini said Sandy Bridge was one of the best products the company has ever built—also Intel resumed making stock buybacks.
What’s the trade?
I’ve got the chip space on my radar, says Jon Najarian. But instead of Intel, I’m watching Cirrus Logic on takeover chatter.
Looking at McDonald’s - it’s been a favorite of our traders, but it was also the biggest drag on the Dow Wednesday after the burger giant reported disappointing November sales – in part due to big weakness in Asia.
What’s the takeaway?
I think McDonald’s is showing us that the US is strong and the rest of the world is weak, says Steve Cortes. Asia is suffering from China tightening. And Europe is suffering from financial woes. I’m a buyer of the US dollar and US companies with heavy domestic exposure.
I thought McDonald’s still had pretty dang good sales, counters Jon Najarian. They just didn't meet the expectations which were quite high.
What do you think? We want to know!
FAST FLASH: LAS VEGAS SANDS SELL OFF
The traders suggest putting Las Vegas Sands on the radar, after the stock made a sharp move lower.
What’s the trade?
I’d add to my short position if the stocks pops to $48, says Steve Cortes. As long as it stays below $50 I’d expect it to trade with a $30-handle.
CALL OF THE DAY: NETFLIX
As we told you on Tuesday's Fast at 5, Netflix took a hit in extended trade Tuesday due to word that its CFO had departed the company.
And the stock continued to struggle Wednesday. Adding to the headwinds - Jefferies analyst Youssef Squali downgraded the stock to 'Hold' from 'Buy' on valuation for a number of reasons. They follow:
-Limited Upside to $195 Price Target
-CFO Departure a Big Loss
-Greater Insider Selling
Source: Youssef Squali, Jefferies
Should you buy the weakness or run for the hills? Squali tells the desk he still considers Netflix a hyper growth company with top line potential of 30%. At what price does he suggest getting back in?
Get all the details. Watch the video now!
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Trader disclosure: On December 8, 2010, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Steve Cortes Owns (TSN) and (TM). Steve Cortes is short (XRT) vs. S&P 500. Steve Cortes is short (LVS). Steve Cortes is long USD vs. Mexican Peso. Steve Cortes is short Corn. Steve Cortes owns U.S. 2-Year and 30-Year Treasuries. Jon Najarian Owns (CBOE), is short (CBOE) calls. Jon Najarian Owns (CME), is short (CME) calls. Jon Najarian Owns (YHOO), is short (YHOO) calls. Jon Najarian Owns (IBM) call spreads. Jon Najarian Owns (XLF) call spreads. Jon Najarian Owns (GS) call spreads. Jon Najarian Owns (MS) call spreads. Jon Najarian Owns (JPM) call spreads. Jon Najarian Owns (MGM) call spreads. Jon Najarian Owns (LNC) call spreads. Jon Najarian Owns (SLE) call spreads. Jon Najarian Owns (CRUS) call spreads. Jon Najarian Owns (GDX) put spreads. Jon Najarian Owns (SLV) put spreads.
Accounts Managed By Kanundrum Capital Own (DE) Call Spreads
Accounts Managed By Kanundrum Capital Own (DRYS) Calls
Accounts Managed By Kanundrum Capital Own (MON)
Accounts Managed By Kanundrum Capital Own (MCP)
Accounts Managed By Kanundrum Capital Own (TBT)
Accounts Managed By Kanundrum Capital Own (SPY) Put Spreads
Accounts Managed By Kanundrum Capital Own (GDXJ) straddles
Floyd, Gordon, & Partners is short Euro against the USD
Floyd, Gordon, & Partners is short Sterling against Aussie.
Gordon is long S&P
Gordon is long U.S. Treasuries
Forex.com is a market maker in all currencies
Jeffries is a market maker in (NFLX)
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