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Pro: Don’t Mistake Strength in Industrials as ‘Buy’ Sign

On Friday investors were keeping a close eye on the action in the XLI , the ETF that tracks industrials with Dow components GE, United Technologies , and Caterpillar among its top holdings.

Interest became rather keen after strength in the sector drove the S&P to a positive close, the second time in as many days. That's the first two-day winning streak since July 21-22.

Considering industrials also helped drive the S&P to new bull market highs earlier in the year, chatter began to surface that recent action might be a bull sign.

However, pro trader Steve Grasso says to interpret gains in the sector that way would be a mistake.

”You have to get behind the psychology of the trade,” he explains. “Until quite recently the Street thought growth might be slowing but not stalling. Then this week, we went from slow growth to talk of a double dip recession to whispers of a possible depression.”

As you might expect, that kind of speculation spooked traders. “We had a mass exodus out of all these names.”

As a result Grasso thinks these stocks were oversold and over the past 2 session shoppers couldn’t resist a bargain. “It’s a bounce off the bottom,” he says, “nothing more.”

Of course the argument here is that Caterpillar’s CEO made some very bullish comments which suggest fundamentals remains quite strong. Specifically, Doug Oberhelman told CNBC Friday he's optimistic based on the heavy machinery company's day-to-day sales, and discussions with customers and distributors around the world. Also he said the company's hiring.

But Grasso doesn’t think it matters - he doesn't think fundamentals come into play right now. “Companies that you’re investing in can have the best fundamentals in the world – if the market goes down – your company is probably going down too. If you’re holding these names and you caught the bounce, I’d trim my positions,” he says.

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NORDSTROM LEADS RETAIL SHARES HIGHER

It appears luxury retail is doing just fine with shares of Nordstrom surging after the company delivered better than expected 2nd quarter earnings. Nordy's also raised its 2011 forecast.

Patty Edwards cautions investors not to extrapolate Nordstrom results to other high end retailers. "Nordy's management team is doing a phenomenal job," she says. "The strength comes from the team."

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U.S. FINANCIALS STILL SELLING OFF

Although money is rotating into industrials it’s still coming out of financials. Goldman took another hit and rival Morgan Stanley fell to a 2-year low.

What should you make of it?

Pete Najarian worries that bank weakness could be a leading indicator for the broader market. He's spotted a slew of signs:

- Bellwether and Dow component Goldman Sachs traded lower on the same day the Dow Average traded higher by triple digits.

- Also, he doesn’t like the technical action in the chart of Morgan Stanley. “It looks broken” he says.

- And the XLF which is the ETF that tracks the financial sector struggled to stay above 13. “Even JPMorgan has started to drift,” he says.

Patty Edwards thinks there are much better places to put money to work than the financials. She doesn't like the short selling ban that went into effect in Europe. "In 2008 when a short selling ban went in place, here – stocks sold off horrendously after the ban was lifted." She sees no reason that can't happen again.

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TICK BY TICK: NVIDIA

The traders put NVIDIA on the radar after the stock basically gave up all of its gains at the open, even after the chip maker raised its 3rd quarter sales forecast.

How should you play it?

Pete Najarian conceds that valuations look very attractive in this stock but analyst projections aren’t very good. "I’d rather play chips with Intel ," he says.

Brian Kelly agrees. "Although I have no position in tech and I’m bearish on the global economy, if I had to buy anything it would be Intel. And I'd use the dividend to pay for an options hedge," he says.

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GOLD TOPS 1800 BEFORE PULLING BACK

Gold traded lower for the second day in a row with investors wondering if the down move was profit taking after a monster run or an early sign that gold is starting to break down.

What should you make of it?

Trader Brian Kelly sold out of gold. "But I would not short gold either," he says.

Patty Edwards is on the other side of the trade. She continues to hold gold. "I think the uncertainty out there will drive gold. I'm holding on," she says.

Steve Grasso expects gold to trade $2000. "It might come in, but long-term I think we're looking at much higher prices," he says.

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MONEY IN MOTION

Volatility has been the dominant theme in the markets this week, not just in terms of equities, but also currencies. The euro has been all over the place.

What should we make of it and what's next for the euro?

Find out from Rebecca Patterson, chief markets strategist at JPMorgan Asset Management.

Watch the video now!




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Trader disclosure: On Aug 12, 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 (AMD); Steve Grasso owns (ASTM); Steve Grasso owns (BA); Steve Grasso owns (BAC); Steve Grasso owns (C); Steve Grasso owns (D); Steve Grasso owns (JPM); Steve Grasso owns (LIT); Steve Grasso owns (LPX); Steve Grasso owns (LVS); Steve Grasso owns (MAR); Steve Grasso owns (MHY); Steve Grasso owns (NDAQ); Steve Grasso owns (PFE); Steve Grasso owns (PRST); Steve Grasso owns (UAL); Steve Grasso owns (XHB); Steve Grasso owns (XLB); Steve Grasso owns (XLI); Najarian is Long (MS)

For Brian Kelly
Accounts Managed By Brian Kelly Capital Own (SLV) calls
Accounts Managed By Brian Kelly Capital are short the British Pound
Accounts Managed By Brian Kelly Capital are short the Euro

For Patty Edwards
Edwards Owns (GOOG) For Clients
Edwards Owns (JWN) For Clients
Edwards Owns (SMH) For Clients
Edwards is long Gold For Clients
Edwards is long Silver For Clients
Edwards owns the Canadian Dollar

For Steve Grasso
Stuart Frankel & Co and it’s partners own (AAPL)
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 (MET)
Stuart Frankel & Co and it’s partners own (MSFT)
Stuart Frankel & Co and it’s partners own (YHOO)
Stuart Frankel & Co and it’s partners own (RHT)
Stuart Frankel & Co and it’s partners own (MET)
Stuart Frankel & Co and it’s partners own (MU)
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 (UAL)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners are short (QQQQ)


For Rebecca Patterson
** No Disclosures




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