On Wednesday traders on the floor drove stocks higher with the Dow surging by triple digits before paring gains, as Fed Chairman Ben Bernanke answered questions from Congress in a regular Q&A session, sometimes called Humphrey Hawkins.
”No question, it’s risk on,” says Fast trader Pete Najarian referring to the market’s reaction to a few key comments made by the Fed chief.
Specifically, the pros focused in on two comments. Here’s the first:
”The possibility remains that the recent economic weakness may be more persistent than expected and that deflationary risks might re-emerge implying need for additional policy support.”
The takeaway on Wall Street was simply that all options were on the table and giddy investors drive stocks sharply higher. “Investors took it as a Fed put on the stock market,” explains CNBC’s Steve Liesman.
However we’re hearing investors may be getting a little ahead of themselves.
If QE3 is, in fact, on the table, Chris Mustascio of Stifel Nicolaus thinks the current stock market euphoria is entirely misplaced because it implies a weaker economy and deflation.
He’s particularly concerned about the impact QE3 could have on banks “because it will keep rates artificially low – and the margins for the banks will stay low."
Trader Steve Cortes worries about the impact stimulus could have on Main Street– because it raised energy prices and food prices – two drags on the economy. “QE2 was not helpful to regular Americans, in fact it was very harmful because it raised food and energy prices.”
Trader Pete Najarian isn’t quite so bearish but he also thinks if you’ve profited from the recent gains, take profits. Down the road he suggests looking at Freeport or Caterpillar – two global growth names – but not here.
Trader Brian Kelly is among the Bernanke faithful. In this environment, “buy anything,” he says. Bernanke told us that if the economy gets weak he’s going to pump money into the system and if the economy is strong the stock market goes higher.
Kelly is bullish commodities in particular and suggests a long position in silver via the SLV or a long position in the GDXJ or coal.
As we mentioned above, pros were focused on two comments - here's the second.
“If we went so far as to default on the debt it would be a major crisis because the Treasury security is viewed as the safest and most liquid security in the world and is the foundation for much of the financial system. The notion that it would suddenly become unreliable and illiquid would throw shock waves through the entire global financial system.”
The takeaway on Wall Street was that the debt ceiling was quickly growing into a troublesome issue.
Trader Zach Karabell calls it the market wildcard, which could completely derail the rally. "It’s getting dangerous,” adds trader Karen Finerman.
According to his Beltway sources, FBR analyst Ed Mills confirms that trouble may lie ahead. ”I’m hearing the debt ceiling will be raised and that a deal will include massive spending cuts but no one will guarantee to get it done by August 2nd,” Mills says in a live interview.
And if Congress does crash the deadline markets will likely react very negatively – in fact Mills says it might be a necessary evil to get the two parties to reach an agreement.
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Trader disclosure: On July 11, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian owns (AAPL); Pete Najarian owns (ACI); Pete Najarian owns (C) ; Pete Najarian owns (F) bonds; Pete Najarian owns (MS); Pete Najarian owns (MOS); Pete Najarian owns (MRVL); Pete Najarian owns (PFE); Pete Najarian owns (GE); Karabell owns (AAPL); Karabell owns (GOOG); Karabell owns (GS); Karabell owns (FXI); Karabell owns (CSCO); Cortes owns (AAPL); Cortes owns (GOOG); Cortes owns (POT); Cortes owns (GS); Cortes owns (CSCO); Cortes owns (FXI)
For Steve Cortes:
Veracruz LLC is short (XLF)
Veracruz LLC owns (POT)
For Zachary Karabell
River Twice Capital is short (XLF)
River Twice Capital and Karabell own (POT)
Accounts Managed By Brian Kelly Capital Own (KRE)
Accounts Managed By Brian Kelly Capital Own (WFC)
Accounts Managed By Brian Kelly Capital Own (ANDE)
Accounts Managed By Brian Kelly Capital Own (TCK)
Accounts Managed By Brian Kelly Capital Own (FCX)
Accounts Managed By Brian Kelly Capital Own (TCK)
Accounts Managed By Brian Kelly Capital Own (UGA)
Accounts Managed By Brian Kelly Capital Own (RTH)
Accounts Managed By Brian Kelly Capital Own (SLV)
Accounts Managed By Brian Kelly Capital Own (TBT)
Accounts Managed By Brian Kelly Capital Are Short the British Pound
Accounts Managed By Brian Kelly Capital Are Short the Yen
CNBC.com with wires.