DOW FALLS DAY AFTER SURGING 11%
The Dow slipped on Tuesday as fears that the global economy may not avert recession slammed shares of technology and consumer companies, eclipsing a government rescue plan for banks.
A day after the Dow leaped 936.42 points in its biggest one-day point gain ever, investors looked past the U.S. pledge to pour $250 billion into major banks and instead focused on the dismal outlook for earnings and the economy.
A disappointing outlook from Pepsi further fueled those worries, especially given that soft drinks and snacks are usually seen as safer bets when the economy falters. Pepsi's shares had their worst day since the 1987 stock market crash.
UNCLE SAME TO THE RESCUE
Bank stockssoared on Tuesday after the government introduced details of its plan to inject $250 billion into the battered sector. In a nutshell, the government is buying $250 billion in preferred stock from America’s largest banks.
In addition the plan provides federal guarantees on new bank debt for three years and FDIC insurance for non-interest bearing accounts, mirroring measures taken by other members of the Group of Seven nations
Details of Government Plan
* Preferred Dividend of 5% First 5 Years (9% After 5 Years)
* Warrants Equal to 15% of Preferred Investment
* Treasury May Transfer Shares to 3rd Party At Any Time
* Consent Required for Any Increase in Common Dividends
The plan doesn’t really address the toxic assets or the housing crisis, observes Karen Finerman. I’m hoping that banks take the money and start to lend but what happens in practice, I don’t know.
Except for the 9 favored banks, every other stock is a sell, bristles an aggravated Jeff Macke. As far as I'm concerned the Fed found the match that lit the forest fire that’s going to burn down every house in the valley.
I’d keep an eye on Nat City ,Regent Bank or other regional banks, adds Pete Najarian. I think they now have a reason to start lending.
Pete’s option’s trade: If you have 10 grand in to put to work in the market I’d buy a commodity stock such as Freeport McMoran (FCX) and sell at the money calls or go up a strike price. That’s called a buy right options trade and this environment is perfect for it.
CREDIT MARKETS THAWING A BIT
The Libor rate (the rate banks change one another for loans) dropped the most since March 17th signaling a renewed willingness among banks to trust one another.
Don’t let these numbers lead you astray, counsels Tim Seymour. Problems in credit markets are still acute.
OIL DROPS 3%
Crude prices fell back below $80 on Tuesday sending energy and materials companies lower on growing worries that a recession would curb the demand for oil and other commodities.
Freeport McMoran is up 48% in the last 3 sessions, says Guy Adami. That trade is over.
I’d look at Arch Coal , adds Pete Najarian. I’d buy the November 25- strike call and sell the upside call.
AFTER HOURS ACTION: INTEL
Intel reported a profit that beat analysts' forecasts by a penny—and cautioned that demand in the current quarter was uncertain—but the semiconductor giant's shares jumped in late trading Tuesday.
As an investors you have to make a decision. Do you like Intel at 11 times forward earnings or do you think it’s over priced, counsels Guy Adami.
This quarter is irrelevant, muses Karen Finerman. It’s the outlook that matters.
I sold my position in Intel a while back, bristles Jeff Macke.
AFTER HOURS ACTION: GENETECH
Genentech reported Tuesday that sales of cancer drug Avastin topped Wall Street estimates and its shares rose more than 3 percent after hours, despite third-quarter earnings that fell short of analyst expectations due to higher costs.
Avastin numbers were very strong and this stock is worth watching, says Pete Najarian.
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Trader disclosure: On Oct. 14, 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); Macke Owns (MSFT), (BNI), (WMT); Seymour Owns (AAPL), (F), (MER); Najarian Owns (AAPL) And (AAPL) Puts; Najarian Owns (GS) And Is Short (GS) Calls; Najarian Owns (INTC) Call Spread; Najarian Owns (MS), Owns (MS) Puts, Is Short (MS) Calls; Najarian Owns (NCC) Calls; Najarian Owns (RF) And Is Short (RF) Calls; Najarian Owns (UNG) And Is Short (UNG) Calls; Finerman Owns (GS); Finerman's Firm Owns (DNA) Call Spreads; Finerman's Firm Owns (MSFT); Finerman's Firm Is Short (SPG), (IJR), (MDY), (SPY), (IWM), (USO), (BBT), (COF) ; Finerman's Firm Owns (JNJ); Finerman's Firm Owns (MRK)
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