Pros: Is S&P's Dramatic Rally a 'Buy' Signal?
On Thursday, CNBC’s Fast Money traders were taking a long hard look at gains in the stock market wondering if sentiment was starting to make a major shift.
On the domestic front, bullish tailwinds were generated by a surprisingly strong Midwest economic report that showed business activity grew more than expected this month. The new data calmed concerns about the health of the US economy.
And on the international scene the parliament of Greece approved measures that made the nation eligible for more aid to avoid defaulting on debt.
The resulting rally was so dramatic that it pushed the S&P above its 50-day moving average at 1,317 despite analysts' expectations it would meet resistance.
In fact, stocks were on track to put in their single best week in nearly a year.
Ahead of the Independence Day holiday, has the market just said to investors, come on in – the waters fine?
Instant Insights with the Fast Money traders
If you’re not already in the pool, trader Steve Grasso suggests pulling up a chaise, but staying to the side. “I see no reason to rush in here,” he says. “Given that we were trading 1263 about a week ago, we’re up in a hurry. I’d give the market time to breathe. I would not chase the market.”
However, that’s not to say he’s stay on the side, indefinitely. “Give it a week,” he counsels. “Wait to initiate new buys for a week.” However he does think you’ll want to take the plunge in July. “Historically it’s a much better month than June.”
(In Tuesday’s web extra, Grasso revealed the 3 sectors that historically outperform in July. Click here to check it out.)
Trader Guy Adami is a little more cautious. If you’re a trader, “It's getting a little late, at least in terms of the short term rally, to go piling in. I wouldn’t go racing in anymore,” he says.
However, Adami doesn’t see a significant sell-off coming either. “I can make a compelling argument that the March 16th lows along with the lows of a week ago have created a double bottom,” technically a point of strong support.
Then what do you do? "1325 is the next key level, a pivot level," he says. Let's see what happens, there.
Trader Steve Cortes is on the other side entirely. Although he concedes that right now the theme in the market is risk-on, he remains skeptical that the rally can sustain. “The main reason is the down move in commodities,” such as base metals, oiland nat gas.
Cortes thinks the declines are “flashing danger about real industrial demand.” He does not think the recent run higher was a sign of economic strength - instead he thinks it was merely a result of QE2 and the resulting weaker dollar.
WAY TOO CORNY?
Looking at the softs, corn plunged on Thursday after the latest crop report, arguably the most important crop report of the year, showed a much larger than expected supply of corn.
”Fasten your seatbelts,” says Rich Ilczyszyn of Lind-Waldock. “Corn numbers will probably be the main driver of the market.”
He goes on to say, the sentiment on the floor is pretty bearish corn.
However, the traders do see upside from corn’s down move. Ilczyszyn thinks the increased acreage in corn could have been drawn out of other markets. “Soybeans could catch a bid,” he says.
Outside the grains futures, trader Steve Cortes thinks lower grains prices should benefit supermarkets such as Supervalu .
TECH: THE WINNER FOR REST OF 2011?
It seems tech has been the place to be this week, with the sector popping about 5%. But, the question is: will that continue into the balance of the year or is it a short term momentum trade?
Trader Guy Adami thinks investors should pick and choose in the space. “Given its current price Oracle looks like a value,” he says, “and IBM is a monster. I think that stock goes to $200.”
Trader Steve Grasso thinks the tech trade is all about Apple. “Stay with it,” he says.
If you’re thinking about playing Microsoft, Jon Najarian says, “it’s a cash machine but not necessarily a great stock to own.” However if you trade options, he likes Mr. Softy more. “It’s a great stock to hold if you’re comfortable writing options against it.”
Trader Cortes doesn’t like the entire tech sector. ”I’m short technology against the S&P is because of Apple’s underperformance ytd,” he says.
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Trader disclosure: On June 30, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami owns (AGU); Adami owns (C); Adami owns (GS); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU); Adami owns (INTC); Cortes owns (SVU); Cortes owns (SO); Cortes owns treasuries; Cortes is short crude; Cortes is short Silver; Cortes is short (BIDU); Cortes is short Corn; Jon Najarian owns (AAPL) call spreads; Jon Najarian owns (AKS) call spreads; Jon Najarian owns (MT) call spreads; Jon Najarian owns (AXP) call spreads; Jon Najarian owns (BIDU) call spreads; Jon Najarian owns (HOC) call spreads; Jon Najarian owns (NSC) call spreads; Jon Najarian owns (PTEN) call spreads; Jon Najarian owns (UA) call spreads; Steve Grasso owns (AKS); Steve Grasso owns (AMD); Steve Grasso owns (ASTM); Steve Grasso owns (BA); Steve Grasso owns (BAC); Steve Grasso owns (C); Steve Grasso owns (D); Steve Grasso owns (HOV); Steve Grasso owns (JPM); Steve Grasso owns (LIT); Steve Grasso owns (LPX); Steve Grasso owns (MHY); Steve Grasso owns (NDAQ); Steve Grasso owns (PFE); Steve Grasso owns (PRST)
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