Nervous investors found themselves all the more rattled on Monday after Bank of America said October could be scary – and we’re not just talking Halloween.
The bank’s chief US market analyst Mary Ann Bartels said with the S&P still struggling in the 1130 – 1150 range some very negative signs are emerging.
”The short-term price momentum indicators, the 14-day stochastic and RSI, are weakening sending a negative divergence signal,” Bartels writes, "while volume remains low calling into question the rally.”
That outlook is particularly surprising considering a positive September suggests the S&P should make additional gains through the end of the year, according to history. In fact that’s something Fast Money wrote about at length a short while ago. (Click here to go to "Rare Positive September Good for Outlook".)
However Bartels addresses that issue in her note but still says “October may bring more of a "Trick" to investors than a "Treat". We remain defensive expecting a correction that could be up to 10%-12%.”
How should you trade it? The Fast Money gang can't quite get on board with BofA, at least not right away.
Instant Insights with the Fast Money traders
"I'm a buyer of the market with a tight top," says Steve Grasso of Stuart Frankel. However if the S&P breaks below 1130 get out.
“I’m not seeing corresponding action (to BofA's call) in the options world,” adds OptionMonster Pete Najarian. “I’d expect to see the Vix explode -- to 40 -- if (that kind of sharp downturn) were to happen. That would catch a lot of investors off guard.”
"I'm also a buyer of stocks into the close," adds JJ Kinahan of TD Ameritrade.
THIS STOCK A 'MORGAN STANLEY BEST IDEA', REALLY?
Investors are scratching their heads after Morgan Stanley called one stock a ‘best idea’ with estimates 40% above consensus.
We’re talking about the bank's call Monday in which analyst Adam Jonas initiated coverage of Ford with an 'Overweight' rating and a $20 price target citing strong revenue opportunities.
Considering the stock has trouble getting above $13, the call raised eyebrows to say the least.
Fast Money was so intrigued by the call we invited Jonas to join us on Fast Money’s Halftime Report.
He told us there are three factors behind his lofty price target – which is, again 40% higher than consensus. They are:
- Strong US volume, 14 million units in 2011 (1 million above consensus)
- Less negative on Europe, Ford’s second biggest market
- Ford credit, extremely low loss ratios and a collapse in funding costs.
"These factors help take the company from $5 billion of net auto debt to $16 billion of net cash by 2016, Jones says. "If we're right Ford should achieve an investment grade credit rating and resume a dividend payment far sooner than the market anticipates."
Should you follow the advice?
I’d think there would be some pressure on the stock with the GM IPO coming, muses Pete Najarian. But I can tell you I’m seeing a lot of interest in the Ford 15 calls. That suggests a positive tone in the options world.
Ford is a frustrating trade, adds Steve Grasso on Friday's Halftime Report. Typically Ford stays above $12 but doesn’t seem able to break above $13.
Check out our entire interview with Jonas in the video above!
FAST FX: DOLLAR
The dollar held near its weakest levels in six months against the euro on Monday, after Federal Reserve officials said more stimulus might be needed if the U.S. economic outlook remained weak.
What’s the trade?
I expect to see a weaker dollar going forward, says Steve Grasso. That’s how I see my clients trading.
I’d stick with the commodities trade, adds Pete Najarian, which benefits from the weaker dollar.
BUY DIAMONDS WITH IPHONE APP?
Would you buy diamonds from your iPhone? Blue Nile is hoping you will; in fact they introduced a new app that allows shoppers to do just that.
”Our business has been all about the empowerment of the consumer,” explainsBlue Nile CEO Diane Irvine “and this is the next evolution of that. We’ve seen people using mobile devices to purchase from us for more than a year.”
Is the move a sign that the nation’s largest online diamond retailer is ahead of the curve or are they heading in the wrong direction?
Don’t make a move until you hear our interview with Blue Nile CEO Diane Irvine.
Watch the video now!
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Trader disclosure: On Oct. 4, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST); Karabell Owns (AAPL), (GOOG), (RIMM), (C), (GS); Kinahan Owns (MSFT), (YHOO), (C), (WFC), (SPY); Najarian Owns (YHOO); Najarian Owns (WFC) Put Spread; Najarian Owns (F) Bonds; Najarian Owns (F) Call Spread; Najarian Owns (CNI); Najarian Owns (VLO); Najarian Owns (PFE); Najarian Owns (TEVA); Najarian Owns (NOV); Najarian Owns (GDXJ); Najarian Owns (DD); Najarian Owns (DO); Najarian Owns (POT) Call Spread; Najarian Owns (BUCY) Call Spread; Najarian Owns (NTAP) Call Spreads; Najarian Owns (AKAM) Call Spreads; Najarian Owns (NVLS) Call Spreads; Najarian Owns (BCSI) Call Spreads; Najarian Owns (AKAM) CALLS
For Steve Grasso:
Stuart Frankel & Co and it’s partners own (AMGN)
Stuart Frankel & Co and it’s partners own (BAX)
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HPQ)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)
For Zach Karabell:
Funds Managed By Karabell Own (MSFT
Funds Managed By Karabell Own (GS)
Funds Managed By Karabell Are Short (SPY)
Funds Managed By Karabell Are Short (QQQQ)
For Adam Jonas, Morgan Stanley Analyst
Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Ford Motor Company.
Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Ford Motor Company.
In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Ford Motor Company.
Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from Ford Motor Company.
Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: Ford Motor Company.
Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: Ford Motor Company.
Morgan Stanley & Co. Incorporated makes a market in the securities of Ford Motor Company.
The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.
Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providing liquidity and specialized trading, risk arbitrage and other proprietary trading, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report.
CNBC.com with wires.