On Tuesday, investors were eyeing the terrain ahead, wondering if the S&P gains were an early sign that bulls were about to start their next push.
Largely, industrials led the market after Cummins said 2011 would likely be a record setting year for the company. Also the engine maker set aggressive growth targets - $30 billion in sales by 2015 – that's a whopping 14% increase per year over the period.
Immediately chatter on the floor turned to whether risk was back on. Did Cummins just put a floor under the market by confirming the global growth story?
According to the Fast pros - not so fast. They say it's a mistake to extrapolate Cummins results to the broader market. In fact, in this case, they say Cummins may be signal of weakness.
"Cummins does well when the economy is doing badly," explains trader Brian Kelly. “Higher energy prices generate interest among companies to buy engines which are more fuel efficient. ”Also we’re seeing a lot of emissions standards changing globally, which benefits Cummins but is not a sign of global growth,” he says.
Trader Patty Edwards adds that because so many stocks in the sector pay dividends, the recent strength may be a sign of fear - that investors are only willing to put money to work in stocks that return capital to investors. Also, she says, gains could be nothing more than an oversold bounce.
Even the usually bullish Joe Terranova agrees. “This is stock specific story. I think Cummins is a name to own but I would not interpret the strength in CMI as a sign of strength in the sector overall.”
”When you look at the rest of the world, between the troubles in Europe and weakness in China’s stock market, I think industrials are to be avoided no matter what Cummins says specifically," adds trader Steve Cortes.
Of course, that’s not to say the Fast pros don’t see opportunity. They do. They're simply saying in this environment rather than make broad sectors bets, you have to play stock picker.
Terranova thinks the trade is longJoy Global. “Around $78 that’s a great stock.”
Patty Edwards says if you want to nibble, take a look at Lincoln Electric as well as Chicago Bridge and Iron.
CHAMBERS’S LAST STAND?
Turning attention to tech, Cisco landed on the trader radar after the company hosted its analyst day and CEO John Chambers made aggressive comments about winning share away from rival Juniper.
How should you trade it?
Joe Terranova can't get on board. "I’m not a buyer. I view Cisco as old technology," he says. "I’d rather own rival Juniper."
Patty Edwards agrees. "I'm not from Missouri - the Show me state – but I need John Chambers to show me something."
APPLE TO PAY DIVIDEND SOON?
With $76 billion on the balance sheet - will Apple pay a dividend soon? Morgan Stanley sure thinks to – they say the company is ‘more likely than ever’ to return cash to shareholders.
What’s the trade?
Trader Brian Kelly doesn't see it. "Apple’s culture is built on innovation not paying dividends," he says.
Trader Steve Cortes sees the situation a little differently. He thinks the environment may favor a dividend. "I think it’s sensible and it could finally happen now that Steve Jobs isn’t there on a day to day basis," he says.
Although he doesn't expect a dividend, trader Joe Terranova thinks Apple has plenty of upside. "I think the stock trades north of $400 in the next 6-8 months," he says.
What do you think? We want to know!