Although stocks initially charged higher, by Monday’s closing bell Wall Street had given up its big morning rally with the S&P ending lower for the first time in 4 days.
Investors clearly decided it was time to take a breather after a sharp gain in Treasury debt prices drove benchmark yields lower and triggered a sell-off.
"We have been recently seeing a disconnect between the two markets. Stocks were up on economic optimism and bonds were up on economic concerns," explains Peter Boockvar, equity strategist at Miller Tabak. Investors are finally catching up with this, and seeing Treasuries as a sign that they should not be buying so much.
What must you know to trade this market?
Strategy Session with the Fast Money Traders
I think the Treasury market is telling us there’s trouble ahead, says Steve Cortes.
September and October are coming, reminds Joe Terranova, and investors are worried about seasonal weakness. But, I think a day like today is valuable to a trader because you get a point of reference, he adds. You find out the point of resistance. And, make no mistake, longterm I’m still bullish.
The Vix is still trading above 25, explains Pete Najarian. That tells me that the S&P could move 16 points a day in either direction.
REGIONAL BANKS TAKE OUT FINANCIALS
Financial stocks, which were among last week's biggest advancers, lost their momentum on Monday after widely followed bank analyst Richard Bove said 150 to 200 more U.S. banks would fail before the conclusion of the banking crisis.
Meanwhile, regional banks trended lower after SunTrust CEO Jim Wells said the nation’s banking system still faces uncertainty and commercial real estate may falter through 2010. Although he was optimistic long-term, Wells said in the near term there is “more uncertainty than clarity”
What’s the trade?
In the space I’d look at Goldman or Morgan , counsels Joe Terranova. Those are best of breed plays. Be careful of the dash for trash stocks.
It seems the tech bulls ran out of steam on Monday with Cisco and IBM weighing down the sector.
What’s the trade?
Tech has been outperforming for most of the year, but markedly underperformed in August, explains Steve Cortes. I recommend a pairs trade. I’m short the Nasdaq against a long position in the S&P because I think tech is too crowded and -- on the S&P -- financials are still under-owned.
I’m bullish best-of breed tech for their balance sheets, counters Pete Najarian.
TOPPING THE TAPE: OIL & ENERGY
The energy sector was one of the few sectors that held onto gains Monday largely due to surging oil prices, which briefly touched a 10-month high near $75 a barrel.
What must you know?
Although some analysts are saying this move is about the weak dollar I don't think it is, muses Joe Terranova. Oil, copper and coal are all working off excess inventories. That’s more likely the catalyst behind the move and that's a fundamental catalyst.
Also, the growth of the middle classes in emerging markets is driving demand, muses Pete Najarian. If you're looking for a trade my favorite stock in the space is Peabody. And I’d also look at Walter Industries .
OPTIONS ACTION: HEALTH CARE
Options activity suggest investors think shares of UnitedHealth could soon move higher, likely due to a growing belief that the Obama administration has backed away from a public option to compete with private HMOs.
What’s the trade?
If you’re looking to trade the trend, volatility may pick up when Congress resumes the debate after recess, explains Jon Najarian. The HMO stocks move on headlines and there’s still a great deal of uncertainty in the space.
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Trader disclosure: On Aug 24th, 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 (BUCY) & Short (BUCY) Calls; Najarian Owns (C) Calls; Najarian Owns (FCX), Is Short (FCX) Calls, Owns (FCX) Puts; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (PALM) Calls; Najarian Owns (V) & Short (V) Calls; Najarian Owns (YHOO) Call Spread; Terranova Owns (AMZN), (MSFT), (WFT), (BTU), (MA), (SHLD); Terranova Is Short (KBH); Terranova Works For (VRTS); J. Najarian Owns (AMD), (AAPL), (BX), (DRY), (LDK), (NTRS), (NUE), (FRE), (FNM), (NVLS); J. Najarian Owns (BAC) Preferred; Cortes Owns (SPX); Cortes Is Short Nasdaq 100; Cortes Owns (GS)
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