Stocks bounced back from a four-day losing streak on Monday, buoyed by strong economic data as well as bullish broker comments.
Financial stocks led the rally after Goldman Sachs upgraded the large-cap bank sector.
And on the economic front, the ISM index rose to 50.9 in September, crossing the 50 threshold indicating expansion and topping expectations. (The services sector represents about 80 percent of the U.S. economy.)
Investors took these two catalysts as positive signs ahead of earnings season which gets underway Wednesday with Alcoa.
How should you be positioned?
The Goldman call and the economic data were both positive, muses Joe Terranova. But as far as I’m concerned it’s all about earnings going forward. Investors will be watching top line earnings and sales growth -- they will be the catalysts for this market for the rest of the month, he adds. And I don’t think most investors expect them to be good.
As far as I’m concerned today’s data doesn’t support this rally either, says Guy Adami. But you can’t fight the tape.
I say dress up as a bull come Halloween because you’re going to see the market run into year’s end, muses Steve Grasso.
TOPPING THE TAPE: GOLDMAN GOOSES FINANCIALS
As we mentioned above, positive comments from Goldman Sachs helped drive the banking sector higher. The firm upgraded the large-cap bank sector to "attractive" from "neutral," saying share prices for companies in the industry didn't reflect their earnings power.
"The market has failed to recognize the dramatic improvement in earning power at the large banks versus the regionals...We believe this difference in earnings power has not been fully reflected in share prices," the firm wrote in a note.
What’s the bank trade?
They’re late, says Guy Adami. I think Wells Fargo will have trouble at $29.
I think we may see another quarter of normalized earnings in banks, speculates Joe Terranova.
Banks just aren’t lending, adds Steve Grasso. It’s hard to me to be bullish.
In the space, I’d look at Greenhill , Lazard and Jefferies, says Pete Najarian. I think they’re buys if they pullback. But if you’re going to trade the space I’d also buy puts as protection.
BULLISH REVERSAL: GOLD
Gold prices rose toward $1,020 an ounce on Monday, gaining more than 1 percent, on a combination of dollar weakness, a turnaround in crude oil prices and lingering economic uncertainty.
Meanwhile, Bank of America Merrill Lynch said gold prices could hit $1,500 an ounce in 2011 when oil prices move back above $100 a barrel as emerging market growth creates shortages.
What’s the trade?
Gold looks like it wants to take out the 1033 high back from the Bear Stearns days, muses Joe Terranova. As far as I can see, it’s a liquidity driven trade and not an inflation trade.
BULLISH REVERSAL: OIL
U.S. crude oil futures rebounded late to end above $70 a barrel on Monday as Wall Street rose after data showed that the U.S. service sector expanded for the first time in a year and the dollar fell as a result.
"The ISM (Institute of Supply Management) number came out and pushed equities up, and the strength eventually spilled over to (the oil) market; but we keep just pivoting at the $70 area," says Gene McGillian, analyst at Tradition Energy.
What’s the trade?
In the oil markets, I think we may see the price of the first-month contract of oil move out of contango and into backwardation, says Joe Terranova.
In commodities I’m fired up about Peabody , says Pete Najarian. And I’m watching Caterpillar , JoyGlobal and Bucyrus for strength in the mining sector.
M&A DRIVING TECH HIGHER
Investors are mulling their next tech trade after Cisco revealed that it expects to continue on the acquisition trail after last week's agreed $3 billion offer for Norwegian videoconferencing company Tandberg. "You are going to see acquisitions in this industry heating up," chief executive John Chambers said on Monday.
What’s the tech trade?
I’d keep my eye on NTAP, says Guy Adami, as a takeover target. Although, at this point, you’re probably late to the trade.
Meanwhile, with the Nasdaq down about 4% in the past two weeks some market mavens suggest the tech heavy index is nearing an inflection point. According to investors such as Dennis Gartman, author of the Gartman Letter, if the Nasdaq does not hold Friday’s lows – things could turn for the worse, very quickly.
If you’re looking to establish a new position in the sector, I’d look at RIM . At current levels, it’s now attractive.
OPTIONS ACTION: BROCADE
Pete Najarian has spotted unusual options activity in Brocade .
A large volume of the Oct 9 calls traded on Monday, which suggests this stock could make a sharp move higher, explains Najarian. Market speculation suggests that Brocade has quietly put itself up for sale and there’s chatter that Hewlett and Oracle are potential buyers.
And I’d also keep an eye on Brocade rivals Western Digital, Seagate and EMC , Najarian adds. I expect to see consolidation in the space.
PIT BULL: DOUBLE DIP AHEAD?
Investors sat up and took notice Monday after comments made by Nouriel Roubini suggested the economy may not recover as quickly as some had anticipated.
According to Roubini the rebound will more likely resemble a "U" shape rather than the more optimistic “V” shape due to five factors: Continued high unemployment; consumer weakness; damage to the financial system; the eroding of the fiscal stimulus, and a lack of capacity utilization.
"I don't know how people can say this is going to be a rapid recovery," said Roubini, "I don't see the argument for it."
What must you know about a U-shaped recovery? For insights we turned to CNBCs Rick Santelli. Find out what he has to say. Watch the video now!
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Trader disclosure: On October 5, 2009, 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), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Grasso Owns (AAPL), (ABK), (BAC), (C), (COST), (CSCO), (PFE), (V), (MMT); Terranova Owns (NOV), (JPM); Terranova Owns Dec. Gold Futures; Terranova Owns March Sugar Futures; Terranova Owns Crude Futures; Terranova Is Short (CCL), (WYNN), (GRMN); Najarian Owns (C) Calls; Najarian Owns (BRCD) Call Spread; Najarian Owns (DELL) Call Spread; Najarian Owns (GE) Calls; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (TEVA); Najarian Owns (ORCL) & Short (ORCL) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (WFC) Put Spread; Najarian Owns (YHOO) Call Spread
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