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Doug Kass: Market’s Problems Already Discounted

Monday, 1 Aug 2011 | 6:48 PM ET

By Monday’s close, investors found themselves reaching for stomach upset medicine after the market’s wild and unexpected swings were enough to trigger nausea - even among pros with iron clad stomachs.

”It was a 3% intra-day reversal from the highs to the lows,” explains Fast trader Tim Seymour. That's significant.

Both the Dow and S&P surged at the open due to optimism about a debt deal. But by lunchtime the market pared gains and turned sharply negative. Then, into the close, stocks reversed course again and began to climb - although both the Dow and S&P did end in negative territory.

And there was plenty of reason to feel negative.

Looking at the fundamentals, here in the US the ISM manufacturing index showed new orders slipped to their lowest levels in 2 years. And overseas, the latest HSBC's China Purchasing Managers' Index fell below 50 in July for the first time in a year, leading to chatter that Beijing’s efforts to curtail inflation by slowing growth had hurt factories.

Also technical signals were negative.

“The Transportation Index and the Small Cap Index, which are two major canaries for market players, broke the 50-day," explains Tim Seymour. Also during the session the S&P breached its 50-day of 1284, although it did close above that level.

But if all these fundamental and technical signals make you want to run for the exits - you may be headed in the wrong direction.

That's what we conclude after hearing from a couple of major market strategists – and one of them is Doug Kass! That’s right, renowned bear Doug Kass - the president of Seabreeze Partners and CNBC contributor suggests the market is ovesold!

Ways to Make Money Fast
Earnings quality and organic growth can yield profitable short-term trades, says Doug Kass, Seabreeze.

“The fact of the matter is a lot of the market’s problems have been discounted,” he says.

”We have a very friendly Fed – tame inflation – valuations are reasonable – credit spreads are stable. I’m shocked at the negativity of investor segment.”

Now, that’s not to say Kass has turned into a raging bull – he hasn't. But when an esteemed strategist who’s famous for market timing makes comments like what you read above – we thought you should know.

And he's hardly alone. Widely followed technical analyst Carter Worth of Oppenheimer says much the same. “The market action is not nearly as bearish as the tape feels,” he tells us.

S&P Violates Support
Are the charts raising a red flag for the bulls after the S&P dropped below its 200 day moving average? Carter Worth, Oppenheimer, discusses.

He says the tight range – between 1250 and 1370 in which the S&P has been trading is something to be expected. ”What I think is important is taking a look at why,” he says.

He explains that charts show the market has been stuck in the same range -- and for the same period of time -- as it was in the summer of 2008 before the collapse. He thinks the current malaise in the market is nothing more than big pension funds and other big money investors recouping losses from 3 years ago. In other words the weakness isn't a referendum on the economy but simple profit taking.

As much as you might want to back away, Worth says the right trade is to take advantage of the weakness and buy.




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Trader disclosure: On Aug 1, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns (AAPL; Seymour owns (BAC); Seymour owns (GE); Finnerman and Finnerman’s firm own (AAPL); Finnerman owns (BAC) and Finnerman’s firm own (BAC) leaps; Finnerman owns (JPM) and Finnerman’s firm owns (JPM) stock and (JPM) leaps; Terranova owns (XOM); Terranova owns (DIS); Terranova owns (WFM); Terranova owns (LULU); Terranova owns (MSFT); Terranova owns (TM); Terranova owns (JWN); Terranova owns (MCD); Terranova owns (PEP); Terranova owns (MA); Terranova owns (BX); Terranova owns (GS); Terranova owns (DAR); Terranova owns (CAT); Terranova owns (VRTS); Terranova owns (AAPL); Terranova owns (F); Terranova owns (CVI); Terranova owns (IBM); Terranova owns (FCX); Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Jon Najarian owns (AAPL) call spreads; Jon Najarian owns (BIDU) call spreads; Jon Najarian owns (APKT) call spreads; Jon Najarian owns (TLB)

For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
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 (AMKR)
Virtus Investment Partners Owns More Than 1% Of Building Materials Holdings
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LHO)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
Virtus Investment Partners Owns More Than 1% Of Sun Pharmaceutical Industries Ltd
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (RLI)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLF)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of Domino's Pizza UK & IRL PLC

For Scott Nations
Nations owns (SPY)

For Dennis Gartman
Funds Managed By Dennis Gartman and Dennis Gartman are short the S&P
Funds Managed By Dennis Gartman and Dennis Gartman own the Australian Dollar
Funds Managed By Dennis Gartman and Dennis Gartman are short the British Pound
Funds Managed By Dennis Gartman are short (EUR)
Funds Managed By Dennis Gartman are long gold.

For Doug Kass
Seabreeze Partners Management is short (GE)
Seabreeze Partners Management is short (DHR)

For Andy Busch
** No disclosures

For Carter Worth
** No disclosures

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