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Fast Money Now – Mid-Day Trades for Tuesday

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The Dow was falling mid-day Tuesday as financial shares declined on renewed credit worries and a report showed inflation is still a threat to the economy, despite the economic slowdown.

I think the market will move on three catalysts Tuesday, says Joe Terranova. They are housing starts, PPI and AIG.

FINANCIALS CRUMBLING AGAIN

The news: Reminding investors that the effects of the housing slump are still far from over, JPMorgan Securities forecast investment bank Lehman Brothers will take a further $4 billion of write-downs in the third quarter due to losses from mortgage-related investments.

Lehman was a company that most investors thought was out of the woods, says Pete Najarian on Fast Money. Now this?! I haven’t put on any trades because the only trade is from the short side, but I’m not that comfortable with it.

Also, Goldman Sachs added to the gloomy outlook as it downgraded the price target for the stock of American International Group, saying the potential for capital raisings and rating downgrades is increasingly likely for the world's largest insurer.

In a note to investors Goldman wrote, "(We) foresee $9-$20 billion in economic losses from the CDS book...forcing rating agencies downgrades, and resulting in large-scale capital raises...We are concerned over: (1) the potential damage to employee morale and a subsequent drain of intellectual capital, and (2) the impairment of counterparty confidence in AIG, which could result in loss of business and market share."

AIG has been a slow bleed down, observes Zach Karabell. I wouldn’t get in the way of the trade.

"We are back to struggling again, in the financial sector particularly," said William Stone, chief investment strategist at PNC Financial in Philadelphia. "Underneath some of that is just concern about the overall global economic slowdown."

I see no reason to be long financials for anything other than a trade, says Jeff Macke. This is going to build on itself until the credit market breaks.

At the end of the day I believe Goldman Sachs lands on their feet and as a result I like this stock on the long side. But I’ve also bought AIG puts as a hedge, counsels Joe Terranova.

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OIL REBOUND ADDS TO MARKET PAIN

The news: Oil prices rebounded Tuesday, jumping back above $115 barrel after the dollar weakened against the euro and a rally in heating oil attracted new buyers into energy markets.

Crude began the day lower after Tropical Storm Fay missed oil and gas installations in the Gulf of Mexico, easing concerns about a disruption in supplies. But prices later spiked more than $3 a barrel, apparently driven higher by a surge in heating oil futures that triggered technical buy orders in energy markets, analysts said.

"Crude's just getting pulled up by heating oil. It was a quick pop and technical triggers may have been hit," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

I believe that Venezuela and Iran will call for a production cut if oil gravitates toward $100, says Joe Terranova. And I also think the move in oil is short covering ahead of Wednesday’s weekly petroleum data.

Venezuela and Iran didn’t like us yesterday and they probably won’t again tomorrow, says an exasperated Jeff Macke. Oil is bouncing, that’s all.

I’m keeping my eye on the OIH, says Pete Najarian. At current levels it’s starting to look interesting.


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INFLATION SOARING…BIGGEST INCREASE IN 27 YEARS

The news: A much higher-than-expected inflation reading for July also scared some investors who fear the U.S. Federal Reserve might be in an increasingly difficult position to maintain its policy of low interest rates.

The government's Producer Price Index shot up at the fastest annual rate in 27 years in July, while core producer prices, excluding volatile food and energy prices, underwent their fastest rise since November 2006.

I don’t see a trade here, says Zach Karabell. I think it’s a tempest in a teapot.


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HOME DEPOT, TARGET FALL AFTER EARNINGS

The news: Shares of Home Depot were declining mid-day Tuesday after the retail giant said it expects sales to decline 5% for the fiscal year ending in January.

The traders note that Home Depot stock is now touching it’s 200-day moving average.

If the stock breaks below $25.85 I’d get out, says Joe Terranova.

If you’re buying the retailers believing the bad news is already in the stock, you’re in a sucker’s trade, exclaims Jeff Macke. (Also it’s worth noting that Jeff Macke sold some of his position in Costco, Tuesday.)

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OPTIONS ACTION NOW: RYLAND GROUP

The news: Pete Najarian seeing unusual options activity in homebuilder Ryland Group.

I see a lot of options action in the October puts. Not sure exactly what to make of it but have it on the radar, he says.

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TOPPING THE TAPE: MEDTRONIC KEEPS THE BEAT

The news: Medical device maker Medtronic, the largest maker of electronic medical heart devices, beat analysts expectations with a profit that grew 11%. Also revenue from its spinal and stent divisions soared 30%.

I like the action in this stock, says Pete Najarian. Both Medtronic and Johnson and Johnson are outperforming the S&P.

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IN THE ZONE: WHAT'S THE FAST MONEY TRADING NOW?

As we first told you Monday Karen Finerman has noticed a real disconnect between the equities market and the debt market.

Risk spread on the financials look worse and worse to me, says Finerman. Freddie is raising paper on Tuesday and it’s very expensive paper. I wonder how they make money when their debt is so expensive.

I don’t think we’ve seen the last shoe to drop, she says. Auto loans and commercial mortgage backs both continue to get weaker.

I would look to short more of the banks, she counsels.




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Trader disclosure: On Aug 19, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (WMT), (MSFT), Macke Is Short (TM); Najarian Owns (AAPL) And Is Short (AAPL) Calls; Najarian Owns (CSCO) Call Spread; Karabell Owns (AAPL), (GOOG), (JPM), (SLB), (WFR); Terranova Owns (GS), (RIMM), (NOV), (POT), (EOG), (SU), (BNI), (IYT), (X), (YHOO), (INTC), (AAPL), (SA), (SA), (KOL), (VLO), (FCX), (CME), (GOOG), (XLF),

Terranova Owns (AIG) Puts; Terranova Is Short Crude Oil Time Spread (Short Dec. 2008, Long Dec. 2012); Terranova Is Long Crude Oil Futures (Dec. 2012)

Terranova Is Chief Alternatives Strategist Of Phoenix Investment Partners, Ltd.: Phoenix Investment Partners Owns More Than 1% Of (ABD), (ARE), (BRE), (CNTY), (CLB), (OFC), (DLR), (ESS), (EXR), (FL), (IAT), (IGE), (LNET), (MAC), (OIIM), (PSPT), (DBC), (DBV), (SLB), (SKT), (BLV)

Terranova Is Co-Portfolio Manager Of The Phoenix Diversifier PHOLIO: Phoenix Diversifier PHOLIO Owns (IGE), (DBC), (DBV)

Terranova Owns (GS) And Owns (AIG) Puts

Finerman's Firm Is Short (BBT); Finerman's Firm Is Short (SPG)