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Nightmare Before Christmas; Trading the Best Buy Fallout

Tuesday, 14 Dec 2010 | 1:26 PM ET

The Fast Money traders spent Tuesday parsing through thelatest earnings from Best Buy, after the company's big miss caused havoc on the Street.

A surprise drop in sales really triggered investor anxiety, with the company citing weakness in "TVs, mobile computing and gaming software."

And to make investors all the more jittery, they added “We don’t have complete visibility to how customers will behave over the next several weeks.”

Are these issues company specific? Or are they an early warning of trouble to come? What’s the trade?

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Joe Terranova of Virtus wouldn’t touch this stock. "This is a huge miss," he explains on CNBC's Halftime Report. "Consumer electronics are hot yet Best Buy sales are down and – perhaps even worse - inventory growth is up. I suspect the stock will have problems for many weeks to come."

OptionMonster Jon Najarian is bullish - he's a buyer. "Best Buy generates impulse buys," he reminds especially into the holidays. "That’s what I think they mean about not having complete visibility." In other words are some people going to wait to the last minute to go electronics shopping.

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And he thinks store traffic will increase substantially right before Christmas. "After Dec 17thAmazon ends free shipping – from that date forward I’d expect to see volumes go up at Best Buy stores."

Patty Edwards of Trutina suggests taking a wait and see approach. "Best Buy does well when there’s a new technology that they can demonstrate to their customers," she says. "But right now there’s no technology that people need to go to store to get. 3D TV’s just aren’t there yet."

Brian Kelly sees Best Buy as a longer-term story. Despite their largely brick and mortar strategy, he thinks people that buy electronics like to have a touch and feel experience. In other words, some shopper won't buy electronics online. "Also Best Buy has strong competition from Walmart ," he adds. But once Best Buy adjusts they should do fine."


What do you think? We want to know!

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SECOND DERIVATIVE TRADES

Looking at the second derivative movers off of Best Buy's results, the desk noticed that investors slammed Radio Shack and HHGregg likely because Best Buy said it was losing share to big box discounters.

Were any stocks punished unfairly?

As a downstream play, GameStop is the name I’m watching, says Joe Terranova. I’m a buyer of the weakness.

I like Corning , says Patty Edwards. Just because Best Buy isn’t selling TVs doesn’t mean TVs aren’t selling.


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COMMODITIES ON?

Commodities investors were chattering about China’s somewhat dovish tone, after Beijing set its inflation rate at 4% next year - this year it was 3%.

"Many observers view this as a sign that the government has raised its tolerance level for inflation and, implicitly, would not tighten as aggressively as it would otherwise," Goldman Sachs China economists Yu Song and Helen Qiao wrote in a note Monday

Will this new policy let the commodity trade loose?

It’s not just whether China is going to tighten or not tighten, says Dennis Gartman. There’s a lot of strength outside the US. India, China, Indonesia and many other areas are strong and are likely to get stronger. That’s likely to the benefit of commodities. I suspect longer term, copper, grains, and oil all go higher as a result.


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HIGHER RATES

With a Fed statement due later Tuesday, the traders are closely watching the action in the bond market. Ahead of the decision the 10 year yield touched 6 month highs and the 30 yr was at 7 month highs.

With rates climbing since QE2 was announced on November 3rd, what's should you be watching?


I’m watching action in the TBT, says Jon Najarian. Options at the 39 and 40 have been white hot. That suggests options investors expect rates to go higher.



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Trader disclosure: On December 14th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova Owns (UPL), (C), (PEP), (OXY), (GS), (NKE), (VRTS): Jon Najarian owns (IBM), is short (IBM) calls; Jon Najarian owns (GS), is short (GS) calls; Jon Najarian owns (GE), is short (GE) calls; Jon Najarian is long (WHR) call spreads; Jon Najarian is long (GS) call spreads; Jon Najarian is long (MS) call spreads; Jon Najarian is long (CME) call spreads; Jon Najarian is long (CBOE) call spreads; Jon Najarian is long (WMT) call spreads; Jon Najarian is long (MSFT) call spreads; Jon Najarian owns (BBY); Jon Najarian is short (FFIV); Jon Najarian is short (RVBD); Jon Najarian is short (APKT)

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For Joe Terranova:
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (ALK)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
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For Patty Edwards
Edwards owns (AAPL) for clients
Edwards owns (GS) for clients
Edwards owns (C) for clients
Edwards owns (CME) for clients
Edwards owns (AMZN) for clients
Edwards owns (F) for clients
Edwards owns (MSFT) for clients
Edwards owns (XLK) for clients
Edwards owns (GLD) for clients
Edwards owns (SLV) for clients
Edwards owns (GE) for clients
Edwards owns (GLW) for clients

For Brian Kelly
Accounts Managed By Kanundrum Capital Own (AAPL)
Accounts Managed By Kanundrum Capital Own (WMT)
Accounts Managed By Kanundrum Capital Own (RIMM)
Accounts Managed By Kanundrum Capital Own (HPQ)
Accounts Managed By Kanundrum Capital Own (FCX)
Accounts Managed By Kanundrum Capital Own (GDXJ) straddles
Accounts Managed By Kanundrum Capital Own (GLD) calls
Accounts Managed By Kanundrum Capital Own (OIH)
Accounts Managed By Kanundrum Capital Own (ANDE)
Accounts Managed By Kanundrum Capital Own (JJG)
Accounts Managed By Kanundrum Capital Own (POT) calls
Accounts Managed By Kanundrum Capital Own (TBT)
Accounts Managed By Kanundrum Capital Own (QCOM)
Accounts Managed By Kanundrum Capital Own (DE)
Accounts Managed By Kanundrum Capital Own (FXY) puts

For Daniel Ives
FBR Capital Markets is a market maker or liquidity provider in (SYMC)
FBR Capital Markets is a market maker or liquidity provider in (BCSI)
FBR Capital Markets is a market maker or liquidity provider in (CTXS)
FBR Capital Markets is a market maker or liquidity provider in (RVBD)

For Dennis Gartman
Funds managed by Dennis Gartman are long the Australian Dollar
Funds Managed By Dennis Gartman are short the Euro
Gartman was asked and has no disclosures on USD, GLD, and other currencies




CNBC.com with wires.

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