Both the Dow and the S&P 500 traded lower on Wednesday after the government said housing starts declined to their lowest level in six months, triggering new concerns about the strength of the recovery.
However, Potash, Mosaic and other ag names traded higher on Wednesday, in part due to positive comments from CNBC’s Jim Cramer who said that agriculture is the next sector that's ready to break out to the upside.
What must you know to trade this market?
I think there’s rotation going on, muses OptionMonster Jon Najarian. It’s seems investors are going into ag stocks and out of the go-go tech stocks. Personally, I’m watching Bunge and Potash.
The only commodity trade I’d have on right now is ag, counsels Fast Money trader Joe Terranova. I don’t like the action in oil or gold right now. I think both could be setting up to fall.
I'm concerned by the housing numbers - they have me closely watching retail stocks, says Danielle Hughes of Divine Capital. I’m wondering if shoppers are going to open their wallets this holiday.
I liked the housing numbers because when you have fewer housing starts you also have fewer houses, counters Jared Levy of Peak6. In other words supply decreases and that’s good for prices. But looking at the broad market, I have to admit that I’m nervous about the current level in S&P.
It’s a good sign that the market is holding above 1100 in this down tape, adds Brian Kelly of Kanundrum. But that’s probably not a sign of fundamental strength. As we move toward the end of the year it’s all about momentum and chasing returns; and the momentum says to me, stay long.
CHART OF THE DAY: LUMBER FUTURES
Brian Kelly of Kanundrum is keeping a close eye on the chart of lumber futures. According to his analysis, the futures have broken a 5-year downtrend. If there’s strength in the sector on Wednesday, it would signal to him that the market believes the housing bottom is in.
As a result he suggests putting PLum Creek Timber, Rayonier, and Weyerhaeuser on your radar.
The housing starts data doesn’t mean good things for Home Depot or Lowe’s, adds Jon Najarian. But I 'do' like these stocks as plays on people staying in their home longer and fixing them up into 2010.
COMMODITIES ROCKING & ROLLING
The weak dollar trade seems to be back in play with gold rising to record highs above $1,150 an ounce on Wednesday as investors seek the metal as an alternative asset.
The precious metal also received a boost after the Wall Street Journal said hedge fund guru John Paulson is looking to step-up his bet on gold with a new fund. The paper says Paulson plans to start a new fund dedicated to investing in gold-related shares and gold derivatives set to launch on January 1.
What’s the trade?
It’s hard to turn away from gold considering the momentum, says Danielle Hughes. Also investors believe interest rates will stay low which is another reason to be long.
The charts show that gold is an uptrend, says Brian Kelly. But if gold is going up this much it also suggests other things are going to heck in a hand basket.
TARGET LEADS RETAIL SHARES LOWER
Retail shares traded in the red after Goldman Sachs downgraded Target to "neutral" from "buy," and removed the retailer from its Americas conviction buy list, saying aggressive promotional activity and pricing competition from rival Walmart could hamper margins.
Meanwhile, BJ's Wholesale Club added to the negative sentiment after the company reported a 37 percent drop in quarterly profit on Wednesday, hurt by a charge for a proposed legal settlement regarding worker pay.
What’s the retail trade?
I’m scared of retail, says Jared Levy. If you must play the space I’d do it with Walmart and Kohl’s – names I consider the safe haven retailers. But I’d only go into these stocks with a buy write strategy.
TRADE TO GO: INTERNET PLAY
Jon Najarian suggests putting Monster Worldwide on your radar.
Unusual options action in the November and January calls suggests to Najarian this stock could make a sharp move higher.
CALL THE CLOSE
Jon Najarian: If IBM and UTEK turn I’d be a buyer, otherwise a seller.
Jared Levy: I’m a seller.
Danielle Hughes: I’m a seller.
Brian Kelly: I’m a buyer.
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Trader disclosure: On November 18th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders;
Terranova Owns (POT)
Terranova Owns Dec. Crude Futures
Najarian Owns (MWW) Calls
Kelly Owns (TOL)
Kelly Owns (PHM)
Kelly Owns (HOV)
Kelly Owns (PCL)
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