DOW ENDS IN THE BLACK
The dollar rose and the Dow edged higher on Tuesday as optimism about consumer confidence and the struggling housing market overcame fresh worries about the flagging U.S. economy and financial sector.
The tape is centered around the financials, says Quint Tatro. It’s impossible to predict and I recommend sitting on the sidelines in financials and wait things out.
For me defense stocks are working in this market, says Guy Adami. Look at Lockheed Martin , Raytheon and Rockwell Collins. I like all three.
STORY OF THE DAY: DOLLAR RALLY
The dollar climbed to six month highs against the euro and held gains after the minutes from the last Federal Reserve meeting provided no surprises.
"This is a big change," says TJM Institutional Services trader Jim Iuorio, "it’s not a correction. We’ve broken some technical levels and it’s a big deal."
The move in the dollar will likely pop the oil bubble and, as a result, airlines and shipping are the most likely to benefit according to Iuoio. But he doesn’t like companies with big international exposure, “I’d look at the more regional airlines,” he concludes.
I agree 100%, says Guy Adami. I think the dollar has a long way to go. Also Europe seems to be at the beginning of a downturn, he adds. I can’t imagine the EU raising rates. My trade is to sell gold, he counsels. And avoid the miners such as Newmont Mining.
OIL CLIMBS 1%
Oil rose as Hurricane Gustav churned through the Caribbean and took aim at U.S. oil and natural gas installations in the Gulf of Mexico. Energy shares rose on fears Gustav could wreak havoc on Gulf installations.
"All of the oil platforms off Texas and Louisiana will probably be at risk, but that's real long-range," Eric Wilhelm, a senior meteorologist at AccuWeather Inc, told Reuters. Gustav could hit the Gulf as a Category 3 hurricane, he said.
I think the energy market is confused right now, says Joe Terranova. The hurricane should be bullish for refiners but it hasn’t been.
Nat gas stocks might be worth a look, adds Guy Adami. Look at Apache and XTO Energy . Also Schlumberger and Halliburton , he counsels.
FANNIE, FREDDIE HIGHER AGAIN
Investors were little troubled by news from the FDIC that 117 banks were on its troubled banks list at the end of the second quarter, up from 90 after the first three months of the year.
FDIC chairman Sheila Bair said that more banks will come onto the list as credit problems worsen, but she categorized 98 percent of U.S. banks as well capitalized.
Bair also said the amount of securities held by U.S. banks and issued by troubled mortgage finance giants Fannie Mae and Freddie Mac was "not problematic."
I think the market is now digesting these reports and moving back to the sidelines, says Joe Terranova. Why get involved?
I would not be buying Freddie or Fannie, adds Jon Najarian.
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BREAKING NEWS: BYETTA
In late breaking news Eli Lilly and Amylin revealed new data showing that 4 additional patients taking Byetta had died from pancreatitis. However it remains unclear if Byetta actually caused the deaths or if the patients would have contracted pancreatitis despite the medication.
Biotech is a tough space, counsels Guy Adami. If Eli Lily sells off down to $45 it’s probably a buy.
If you can pick up Amylin below $24, I think it’s also worth a look, adds Jon Najarian. But wait until Thursday because “there are no one day events on Wall Street.”
I’d take a more cautious approach, counsels Quint Tatro. Look at the iShares Dow Jones US Medical Dev , iShares Dow Jones US Healthcareand iShares NASDAQ Biotechnology Index
. You can really diversify with ETF’s.
In case you’re wondering, at least 1 million patients are taking Byetta currently.
OUT OF THE BASEMENT?
Tuesday's data on housing showed a record annual drop in home prices and rising delinquencies on mortgages, but also pointed to a slowing pace of price declines and a drop in hefty new-home inventories.
Housing is the sector to keep an eye on, counsels Quint Tatro. I don’t think the broader stock market can move higher before this sector finds a bottom. And if you look at a chart of the SPDR and S&P HOMEBLDRS ETF . I think there’s a clearly defined double bottom. That suggests these stocks could lift higher, Tatro concludes.
AFTER HOURS ACTION: J CREW
Shares of J Crew fell in extended trading on Tuesday after the retailer revised its outlook for the second-half of 2008 below analyst expectations.
It was a train-wreck of a quarter, says Guy Adami. I think they will get it right but I wouldn’t look at this stock, yet.
Retailers look like they’re set up to fall on either good or bad earnings, adds Quint Tatro. Beware.
OPTIONS ACTION: EXCEL MARITIME
Jon Najarian Seeing Unusual Options Activity In Excel Maritime
> Click here to find out how he recommends trading.
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Trader disclosure: On Aug 26, 2008, 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), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Tatro Owns (C), (GS); Quint Tatro Is The Principal Of Tatro Capital; Tatro Capital Owns (QQQQ), (SSO), (SPY), (FXI), (XLF), (IHI); Jon Najarian Owns (C), (EXM), (JPM), (UNG); Jon Najarian Owns (AAPL) Calls, (MRVL) Calls, (RMBS) Calls, (EWH) Calls; Jon Najarian Owns (PTEN) Call Spread; Terranova Owns (AAPL), (RIMM), (EOG), (VLO), (YHOO), (NOV), (KOL), (GS), (POT), (SA), (FCX); Terranova Owns (AIG) Puts
Terranova Is Chief Alternatives Strategist Of Phoenix Investment Partners, Ltd.; Phoenix Investment Partners Owns More Than 1% Of (ABD), (ARE), (BRE), (CNTY), (CLB), (OFC), (DLR), (ESS), (EXR), (FL), (IAT), (IGE), (LNET), (MAC), (OIIM), (PSPT), (DBC), (DBV), (SLB), (SKT), (BLV)
Terranova Is Co-Portfolio Manager Of The Phoenix Diversifier PHOLIO; Phoenix Diversifier PHOLIO Owns (IGE), (DBC), (DBV)
Iuorio Has A Short Volatility Position In S&P 500 Futures (Short Call Spreads, Long Futures)