On Wednesday investors were taking a hard look at the market action after the S&P popped higher boosted by strength in energy shares.
Among the major bullish catalysts, crude oil gained sharply after a weekly government report showed inventories fell slightly last week. Both Chevron and Exxon gained on the news.
However, pros were still spooked by some soft economic data released earlier in the week, which showed weakness in factory output and housing starts. In turn, that data triggered greater uneasiness about the recovery.
In fact, recent defensive posturing has sent the benchmark S&P 500 lower - down 2.3 percent for the month.
Is strength in the stock market on Wednesday a bullish signal or is the action nothing more than short covering as the market slides lower?
Instant Insights with the Fast Money traders
Trader Steve Grasso says gains aren’t “anything more than a relief rally” generated because the energy complex became oversold. He suggests going short on the bounce. “Everything on a macro basis looks ripe to be sold.
Grasso points to the fact that stocks continue to stall at key levels while the broad S&P 500 failed at 1370. “We’re banging our heads against the highs,” he says.
Trader Brian Kelly couldn’t disagree more. He’s positive on stocks and believes the commodities bull has further to run. “I watch cotton , corn and copper – they’re all holding key technical levels – for me they’re leading indicators,” he says. In other words, Kelly thinks global growth is better than investors think it is. In fact he’s long BHP Billiton as a bullish bet on global growth.
Trader Steve Cortes says that Wednesday's gains should be viewed in a larger context. “When you consider that in a matter of days crude went from $115 to $95 and silver went from $50 to $32, the small gains of late are irrelevant,” he says.
Cortes believes that the commodities rally is a bubble that’s about to burst; that it was generated by dollar weakness stemming from QE2. But now that QE2 is winding down he anticipates dollar strength.
Pete Najarian falls in the bullish camp alongside Brian Kelly. Najarian points to recent action in the Vix . “It says don’t be afraid, don’t panic.” (Get all the details – click here to go to VIX Indicator: Panic and Run or Hold Your Ground? )
To confirm his thesis Najarian also points to signs of strength in BRIC nations. “We’ve seen support in Shanghai at the 200-day. Also, Brazil showed some strength and the Russia ETF RSX got a little bounce.”
What do you think? We want to know!
ANALYZE THIS: THE REAL SOVEREIGN DEBT CRISIS: JAPAN
Debt concerns in Europe, Greece in particular - keep flaring-up to halt market rallies. But strategic investor Dennis Gartman is more worried about a sovereign debt crisis unfolding in Japan.
He says Toyko is much closer to catastrophe.
Gartman reminds the desk that Japan’s population isn’t growing. In fact it’s declining with the median age increasing.
”There are more Depends being sold in Japan than diapers. That’s an old population,” he says with a smile.
But the fiscal implication is no joking matter.
”Japan's debt to GDP ratio is almost twice that of the United States,” Gartman explains. That hasn’t presented too much of an issue for the past few decades because a large percentage of Japan’s debt is owned by the Japanese people.
However, now there are fewer and fewer people.
Although the argument has been made before, Gartman thinks it’s becoming particularly relevant because of the price action he’s spotted in the currency market.
Looking at the yen relative to other currencies, “relative to the US dollar, the Canadian dollar, the Aussie and the euro - we’re starting to see the yen weaken all fronts,” he says.
”It’s time to be short yen relative to all other currencies.”
Retailers landed 'front and center' on Wednesday after Abercrombie and BJ's both beat on earnings. Meanwhile, Target beat on the bottom line, but sales were soft and Staples sank after cutting it's full year forecast.
What’s the trade?
Steve Grasso thinks the retailers may be due for a pullback. "They’re not shortable yet, but going into the summer I think retail is overextended," he says.
Steve Cortes has been bullish on Target. "However if the stock closes below $50 I’d cut my losses," he says.
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Trader disclosure: On May 18, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Steve Grasso owns (AKS), (AMD), (ASTM), (BA), (BAC), (C), (D), (HOV), (JPM), (LIT), (LPX), (MHY), (NDAQ), (PFE) and (PRST); Steve Cortes owns (SO), (EXC), (KFT), (K), (GS), (MS) and (TGT). Steve Cortes is short Nikkei. Steve Cortes is short EEM vs. S&P Long; Pete Najarian owns (AAPL); Pete Najarian owns (HPQ); Pete Najarian owns (MS); Pete Najarian owns (MSFT); Pete Najarian is long (KGC) calls
Stuart Frankel & Co and it’s partners own (ABX)
Stuart Frankel & Co and it’s partners own (CSCO)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HPQ)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MSFT)
Stuart Frankel & Co and it’s partners own (MU)
Stuart Frankel & Co and it’s partners own (NEM)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners are Short (QQQQ)
Stuart Frankel & Co and it’s partners are short (AAPL)
Accounts Managed By Brian Kelly Capital own (BHP)
Accounts Managed By Brian Kelly Capital own Australia Dollars
Accounts Managed By Brian Kelly Capital own (TLT) calls
Accounts Managed By Brian Kelly Capital own (EBAY)
Accounts Managed By Brian Kelly Capital own (SLV) calls
Accounts Managed By Brian Kelly Capital are short yen
Sacconaghi owns (STX)
Sanford Bernstein is a market maker in (DELL)
Sanford Bernstein received Compensation for non-investment banking-securities related services from (DELL)
Funds Managed by Dennis Gartman are short Yen
Funds Managed by Dennis Gartman own Asian Short term Government Bond fund
Funds Managed by Dennis Gartman own gold, copper, corn, crude oil, soybeans
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