Resilience may be the name of the game Wednesday with the Dow and S&P slipping only modestly despite a long list of catalysts that could have sent the market much lower.
First, new data showed orders for big ticket manufactured goods dropped 2.5% in June, much more than expected.
Also, oil prices plunged as investors feared that less manufacturing meant less demand for oil and an unexpected rise in U.S. crude inventories meant more supply.
In addition, China sparked concern after published reports suggested Beijing might be about to hit the brakes on lending to stem market excesses, a move that could curb the global economic recovery.
What’s the word on the Street?
I think there’s a lot of put protection in place and that’s what preventing a big sell-off, muses Pete Najarian.
It seems to me the market is digesting a tremendous amount of negative news, yet it’s still hanging in there, adds Joe Terranova. I think we’re consolidating and I’m bullish.
I happen to think the market is going lower, counters Guy Adami.
INVENTORY BUILD SENDS OIL SLIDING
As we mentioned above the price of oil took a big hit on Wednesday after an unexpected rise in U.S. crude inventories threw the focus on weak demand.
Is the sell-off justified or overdone?
It’s entirely justified, explains Addison Armstrong of Tradition Energy. It shows that the fundamentals have reasserted themselves. I expect to see oil test $58.30 and if that doesn’t hold it could go down to $55.
I agree, says Guy Adami. I think oil slides but I wouldn’t go out and short oil, either.
Ever since Obama took office, oil hasn’t traded above $72, adds Joe Terranova. That seems to be a point of major resistance.
If you’ve been waiting for a pullback in oil or other resource names, your buying opportunity may be very soon, says Pete Najarian. Also, it seems to me the move in oil triggered a search for dividends and investors found them in utility names FPL and Teco.
TRADING THE GLOBE: SHANGHAI INDEX PLUNGES 5%
Stocks in Shanghai fell sharply on Wednesday on disappointing profits and fears China may restrict lending in the second half which could lead to a liquidity squeeze.
What’s the trade?
If you think there’s more room in the China pullback, you can play it with the FXP , counsels Pete Najarian. There was an amazing amount of activity in the September 10 calls. But be advised it’s a double-short ETF.
Watch China’s PMI, adds Tim Seymour. That’s how you’ll know if the China story is still alive.
If you’re looking for a commodities trade, I like US Steel at $35, says Guy Adami.
MICROSOFT, YAHOO FINALLY TOGETHER
At long last Microsoft and Yahoo! struck a partnership deal to better compete against Google , but the agreement stopped short of combining their display advertising businesses and Yahoo shares fell on the news with investors disappointed by the limited scope of the deal.
"Those that were looking forward to a take-out, the deal today was rather disappointing," explains Marc Pado, of Cantor Fitzgerald & Co. "The 10-year pact, it's not a bad thing. It's not as good as what investors expected."
Under the deal announced on Wednesday, Microsoft's Bing search engine will be the exclusive algorithmic search and paid search technology for Yahoo's sites, while Yahoo will be responsible for selling premium search ads for both companies.
What’s the trade?
I think the big winner is Microsoft, says Citi analyst Mark Mahaney. They’ve been trying to get scale and this was the way to do it. As for Yahoo!, I thought they should have gotten a bigger payment. I expect Yahoo! stock to just bounce around $15, now.
MARKDOWN MORGAN STANLEY
Goldman Sachs took a swipe at its biggest rival on Wednesday with analysts cutting their rating on Morgan Stanley to neutral from buy and lowering their price target to $32 a share from $34.
What’s the trade in financials?
Going forward, I think Morgan Stanley is better positioned to perform in businesses that are more longer-term annuities, says Tim Seymour.
If you want to trade the space look at Jefferies , counsels Guy Adami. On a pullback to $19, I think it’s a buy.
I’m watching Bank of America, adds Pete Najarian. Going forward I think they’re well positioned.
DEMAND WANING FOR GOVT. DEBT
Treasuries fell on Wednesday after a poor five-year debt auction intensified worries over waning appetite for U.S. government debt.
This is very disappointing, says John Spinello, chief Treasury strategist at Jefferies There was anticipation of demand from foreign investors but that didn't show up.
It creates a negative psychology before the auction of seven year notes on Thursday, Spinello adds.
The U.S. government is relying on successful auctions to help fund its stimulus programs, but with the debt load expected to reach $1.84 trillion this year, some investors are concerned that demand will fall off.
If that were to happen, the government would be forced to raise the returns on bonds to attract investors. That in turn could hike up interest rates on mortgages and other types of loans that are closely tied to long-term Treasury yield.
MARKET ON SUGAR HIGH
The bulls just can’t seem push the stock market any higher, lately. If we have come too far too fast, how should you trade?
According to Pimco's Mohamed El-Erian, make your next moves cautiously. "The July part of the rally is a bit of a sugar high," he said in a live interview on CNBC meaning July gains are probably not sustainable.
He went on to say the market probably won’t make any more gains if cost cutting is behind the stronger-than-expected earnings. Instead, he says, investors want to see strong earnings linked to growth.
And "it's not happening yet on the national level, it's not yet happening at the global level," he adds.
Find out how Jon Najarian of OptionMonster.com suggests trading. Watch the video now!
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Trader disclosure: On July 29th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (FXP) Long Calls; Najarian Owns (MET) Long Calls; Najarian Owns (BAC); Najarian Owns (INTC) Call Spread; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MS) & Short (MS) Calls; Najarian Owns (MSFT) & Short (MSFT) Calls; Najarian Owns (PALM) Call Spread; Najarian Owns (V) & Short (V) Calls; Najarian Owns (YHOO) Call Spread; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU);Terranova Owns (MSFT), (MCD), (AMZN); Terranova Works For (VRTS) ; Seymour Owns (BAC), (BHI), (FCX), (SBUX), (EEM); Seymour's Firm Is Short (PBR), (PTR)For Mark Mahaney:
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