The S&P 500 touched a 14-month high on Tuesday as investors bet on a housing market comeback in 2010 after new data showed a surge in existing home sales.
Shares of DR Horton and Toll Brothers were among the many homebuilders that spiked as investors interpreted the results to mean the housing sector was stabilizing.
Signs of stabilization in housing typically boost investor sentiment; as you well know the fallout from that sector led to the downturn.
What must you know to trade the homebuilders?
I think we’re seeing the beginning of recovery, says Karen Finerman. I like Pulte although I don’t own it. And I think there’s more room to run.
I need to see more evidence of recovery, explains Joe Terranova and I don’t think we get it. I think this spike in existing home sales has everything to do with buyers rushing to buy to remain eligible for the tax credit.
I like a lot of the ancillary plays, says Pete Najarian. I’m seeing a lot of call buying in the XHB, which is made up of some of those ancillary names. Take a look at Lowe’s.
In the space I like Home Depot , adds Guy Adami. It’s in the sweet spot.
I’m long Ryland and KB Homenaked, reveals Jon Najarian, (Pete’s brother). I expect them to finish the year higher and remain strong into 2010.
DOLLAR INDEX UP 9 STRAIGHT DAYS
The dollar rose further against a basket of currencies on Tuesday, hitting a two-month high against the yen and keeping pressure on the euro.
Many traders say dollar strength is largely due to year-end unwinding of short positions.
What must you know?
I agree but I also think some of the moves in the dollar are cyclical, adds Joe Terranova. January and February are historically the two strongest months for the greenback.
I think we could see the dollar climb another 10%, adds Guy Adami. And that could mean continued pressure on gold .
I’m bullish coal, exclaims Pete Najarian. As the dollar goes higher this commodity ontinues to climb. I’d play it with Walter Energy. And as a related trade, look at Caterpillar , he says.
If you want to play coal, I’d put Bucyrus on your radar, adds Adami.
AFTER HOURS ACTION: RED HAT
Shares of Red Hat rose in extended trade Tuesday after the business software maker reported better-than-expected quarterly profit.
The world's biggest maker of the Linux operating system said revenue rose to $194 million, beating the average forecast of $188 million. Net income fell to $16.4 million, or 8 cents per share, from $24.3 million, or 12 cents, a year earlier. Chief Financial Officer Charlie Peters said sales were particularly strong in Red Hat's home base in North America.
What must you know?
That’s very strong performance, explains Pete Najarian.
FAST FLASH: GOOGLE TOPS $600
The traders are closely watching the technical action in Google which topped $600.
What’s the tech trade?
I think Google is a value still, reveals Karen Finerman. It’s a little more expensive than I usually like – but it’s a premium name. Their variable costs are very small. As the business grows profits grow too.
I'm still a buyer of Microsoft , adds Pete Najarian. And unusual options action in Seagate suggsets to me this stock could go higher.
WILL HIGHER RATES RUIN THE PARTY?
The traders are closely watching the Treasury yield curve which remained at record steep levels on Tuesday.
Specifically, the spread between two-year note yields and 10-year note yields held at its widest on record, Tuesday, at 285 basis points.
Higher longer-term yields could eventually lead to higher mortgage rates, which could in turn eventually slow or stop any recovery in the homes market.
Is the US about to embark on a period of hyper-inflation?
Find out from Euro Pacific Capital president Pete Schiff! Watch the video now!
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Trader disclosure: On December 22nd, 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 (INTC), (MSFT), (NUE), (BTU), (AGU), (C), (GS); Pete Najarian Owns (CLF), Is Short (CLF) Calls; Pete Najarian Owns (MS), Is Short (MS) Calls; Pete Najarian Owns (MRVL); Pete Najarian Owns (STX) Calls; Pete Najarian Owns (UUP) Call Spread
For Joe Terranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DLR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (UA)
For Jon Najarian
Jon Najarian Owns (RYL)
Jon Najarian Owns (KBH)
For Eric Beder
Beder Owns (ANF)
Beder Owns (TGT)
Brean Murray, Carret & Co. Is A Market Maker In (BEBE), (CACH), (TRLG), (WTSLA), (URBN)
For Peter Schiff
Schiff Owns Gold
Finerman's Firm Is Short (IJR)
Finerman's Firm Is Short (MDY)
Finerman's Firm Is Short (SPY)
Finerman's Firm Is Short (IWM)
Finerman Owns (AAPL)
Finerman's Firm Owns (BAC) Preferred, (BAC), (BAC) Call Spread
Finerman Owns (BAC) Preferred, (BAC)
Finerman's Firm Owns (BDX)
Finerman's Firm Owns (BCR)
Finerman's Firm Owns (MSFT)
Finerman's Firm Owns (PLCE)
Finerman's Firm Is Short (TLT)
Finerman's Firm And Finerman Own (WFC) Preferred
Finerman's Firm Owns (WMT)
Pete Najarian Owns (CAT) Calls
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