Both the Dow and S&P powered higher on Friday with gains largely triggered by two important catalysts.
New data showed wholesale inventories surged by the largest amount in two years in July, a sign that business is anticipating strong demand. Also oil surged well above $76 a barrel on Friday lifting the energy sector broadly.
However, headwinds may be starting to blow as well. It’s largely believed that the market can’t rally without financials and bank stocks continue to lag.
How should you position now?
Instant Insights with the Fast Money traders
Broadly the market has come a long way – it’s now 6% off the lows, reminds Steve Cortes. I had been very constructive on the market but I think it's time to take profits. I’ve done that.
The market is having a tough time getting past 1110 in the S&P, I’m a seller until we break that, adds Steve Grasso.
I'm a buyer, counters Jon Najarian. I like the market going into next week. I think we could see more M&A and that should bode well for stocks.
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ALL ABOUT OIL
As we mentioned above, one of the key drivers on Friday was the lift crude provided for the entire energy sector.
"There's been a resurgence in optimism about the economy, and that's directly linked to oil demand. I'd expect the trend of higher oil prices to continue," says Peter Jankovskis of OakBrook Investments in a Reuters interview.
However, that’s not the only factor pushing oil higher. A pipeline that delivered oil to Midwest refineries was shut down, raising questions about how long the supply may be disrupted.
What’s the trade?
Looking at energy, some of the move in oil is due to the shut down but not all of it, explains Joe Terranova. Not only is there a massive contango in the market but North Sea Brent traded at a premium to West Texas Int’l crude which it never does. Both signs are bullish. I'm a buyer of EOG and Schlumberger . And if you play commodities I’d rotate out of ag and get overweight energy.
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FICKLE FINANCIALS
As we mentioned above financials struggled on Friday with the Regional Bank ETF trading higher but lagging other sectors. Investors have become more interested in the space after widely followed analyst Dick Bove of Rochdale said some of the nation's larger banks could be takeover targets as the sector remains undervalued.
What’s the trade?
Although I believe we’ll see more M&A in the market, the financial sector is probably one of the least likely place where's we'll see major deals, muses Steve Cortes. There are just too many unknowns in the arena, particularly housing.
There is some buy side interest in bank stocks, adds Steve Grasso. My clients are nibbling at both BofA and Citi, says Steve Grasso, especially Citi when it slips below $4.
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GOP REVOLUTION
As we first mentioned Thursday, some on Wall Street believe another force is driving the market rally: a Republican Revolution.
The Intrade contract predicts the Republicans long shot chances at actually taking the Senate has increased to as much as 30 percent this September, from a low of about 17 percent last month. The prediction market site, where actual money changes hands, has the Republicans with a more than 70 percent chance of controlling the House, a result already widely expected.
What’s the trade?
It’s worth noting that UBS says an increased chance of the GOP gaining control of the House increases the chance of policy gridlock and that would be a negative for stocks and a challenge to equity performance, note host Melissa Lee.
I disagree, counters Jon Najarian. If the GOP wins the House, I think the Street will view that as positive. And if the GOP gives Dems a one two punch and also wins the Senate that’s even more positive for business going forward and it should generate a rally.
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NOKIA SHARES HIGHER ON CEO SHAKE-UP
Shares of Nokia traded higher on word that the company is replacing CEO Olli-Pekka Kallasvuo with top Microsoft executive Stephen Elop as the world's top handset maker aims to regain lost ground in the fiercely competitive smartphone market.
Elop, head of Microsoft's business division, has held top posts at Juniper Networks Inc., Adobe Systems Inc., Macromedia Inc. He takes over Sept. 21, the company said Friday.
What’s the trade?
Nokia has a new phone coming out, and I think it could also be a catalyst, says Jon Najarian.
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EAR TO THE WALL: MICROSOFT FOR RIMM
The Street is bubbling with M&A chatter on Friday with perhaps the hottest speculation surrounding the next big deal in tech. Will Microsoft make a play for RIM?
What’s the takeaway?
Now that there’s an executive from Microsoft at Nokia, I can’t help but think Microsoft and Nokia collaborate going forward.
What do you think? We want to know!
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ANALYZE THIS: ADOBE SYSTEMS
Shares of Adobe traded lower on Friday after analyst Adam Holt of Morgan Stanley downgraded shares to Equal Weight from Overweight and reduced his price target to $36 from $42.
What was behind the downgrade? Get all the details in our exclusive interview with Holt. Watch the video above!
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Trader disclosure: On Sept. 10th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Cortes is short gold; Terranova Owns (APA), (AXP), (ARUN), (AAPL), (BMO), (RSH), (FCX), (GS), (IBM), (JOYG), (MRVL), (ORCL), (C), (POT), (GLD), (XBI), (SU), (X), (UPL), (SPLS), (OXY), (QCOM); Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST)
For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
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For Steve Grasso
Stuart Frankel & Co and it’s partners own (BAX)
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Stuart Frankel & Co and it’s partners are short (QQQQ)
For Adam Holt
As of August 31, 2010, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: Autodesk, NetSuite, Red Hat, Inc., Salesforce.com.
Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Adobe Systems, Fortinet Inc., Microsoft, Oracle Corporation, QLIK Technologies Inc., SolarWinds, Inc., SuccessFactors.
Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Adobe Systems, ArcSight Inc, Autodesk, Fortinet Inc., Intuit, Microsoft, Oracle Corporation, QLIK Technologies Inc., Red Hat, Inc., SolarWinds, Inc., SuccessFactors, Symantec.
In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Adobe Systems, ArcSight Inc, Autodesk, Check Point Software Technologies Ltd., Citrix Systems Inc, DemandTec, Fortinet Inc., Guidance Software Inc., Intuit, Microsoft, NetSuite, Oracle Corporation, QLIK Technologies Inc., Red Hat, Inc., RightNow Technologies, Inc., Salesforce.com, SolarWinds, Inc., Sourcefire, SuccessFactors, Symantec, Taleo Corporation, VMware Inc, Websense Inc..
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