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Dow Drops 2%, Led By GE

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The Dow fell for the second day on Thursday after Standard & Poor's threatened to strip General Electric of its 'AAA' credit rating and slumping oil prices crippled energy shares.

Meanwhile, Chevron and Exxon Mobil were the biggest drags on the Dow for the second consecutive session as oil fell almost $4, or about 10 percent, to settle near $36 a barrel on growing fears of falling demand.

Also, investors continued to assess the benefit of the Fed's record rate cut on Tuesday and a proposed stimulus package from President-elect Barack Obama.

And the White House said it was nearing a conclusion on the bailout package that Detroit's Big Three automakers are seeking, even considering an "orderly" bankruptcy, as they struggle to cope with slumping demand and weakening consumer spending.

Strategy Session with the Fast Money Traders

Over the last couple days I think we’ve seen a technical correction, says Joe Terranova. Nothing more.

The last 10 trading days have been commodities driven, adds Pete Najarian. The selloff isn’t just about GE.

I like that the Fed is doing everything possible to get everyone lending, adds Karen Finerman.

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S&P CUTS GE TO OUTLOOK ‘NEGATIVE’

Standard & Poor's on Thursday changed its outlook on General Electric and its finance arm to negative, and said there is at least a one-in-three chance it will cut GE's credit rating from the top 'AAA' in the next two years.

"The negative outlook is based partly on the concerns regarding General Electric Capital's future performance and funding," S&P said in a statement.

"In addition, fundamentals-based earnings and cash flow could decline sufficiently during the next two years to warrant a downgrade,' the rating agency said. 'We will continue to monitor GECC's success in executing on its funding and liquidity plans in light of capital market turmoil."

GE Capital—which finances businesses ranging from investing in commercial real estate, to financing inventory at appliance retailers, to offering store credit cards—is facing the risk of rising delinquencies due to a slowing economy.

The credit rating agencies after being kind of asleep at the switch are now being a little too aggressive, muses Karen Finerman.

It seems to me that ratings agencies are late, adds Guy Adami. They might be right but they’re late. If you’re looking for a play look at Honeywell .

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OIL DIPS BELOW $36 INTRADAY

U.S. crude prices dropped more than 9 percent to $36 a barrel on Thursday as slumping demand and swelling U.S. inventories offset OPEC's record supply cut agreement.

"Following OPEC's announcement to cut so aggressively, market participants are (assessing) the degree of this move as being indicative of just how weak demand is globally for crude oil," says Chris Jarvis, senior analyst at Caprock Risk Management.

Ultimately I think oil is heading lower, counsels Joe Terranova. If the dollar recovers we’ll probably go below $30.

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KEY STOCKS FACING RESISTANCE.

Key stocks such as Morgan Stanley , Google , MGM, and ConocoPhilips are all breaking down at their 50 Day Moving Average.

If Morgan fails at current levels there will probably be another 10% to the downside, says Pete Najarian.

In fact, if all the stocks metioned above fail at their '50-day' get out of the way -- but if they break through there should be plenty of upside, he adds.

I think $78 could be support in Goldman, adds Guy Adami.

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AFTER HOURS ACTION: RESEARCH IN MOTION

BlackBerry maker Research in Motion posted a quarterly profit that was in line with its forecasts Thursday, and also delivered a rosier than expected outlook and said it's seeing strong holiday sales of its smartphones despite a slow economy.

The stock;s off 60% on the quarter and I think there’s opportunity to the upside, says Pete Najarian. But be patient.

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WILL OBAMA SHAKE-UP SEC?

President-elect Barack Obama named seasoned regulator Mary Schapiro to head the Securities and Exchange Commission as he considers a major overhaul of the heavily criticized agency.

Schapiro is now chief executive of the Financial Industry Regulatory Authority, a self-regulatory body for the securities industry. She served as an SEC commissioner for six years, then became chairwoman of the Commodity Futures Trading Commission (CFTC) in 1994 during the Clinton administration.

By naming his pick at this time for the SEC job -- which is not part of the Cabinet -- Obama is signaling an interest in restoring the agency's stature.

Obama has called for a broad changes in Wall Street regulations to prevent future crises and has said the structure of regulatory agencies is among the issues that should be considered. But he has not spelled out any specifics.

Mary Schapiro is a tough enforcer, muses Joe Terranova.

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GM, CHRYSLER STILL ON EDGE

GM and Ford continue to weight on the Dow as auto bailout talks continue. President Bush said on Thursday that U.S. automakers were in fragile condition and he was worried about the impact a "disorderly bankruptcy" might have on financial markets.

Bush, who leaves office on January 20, also said he had not yet made a decision on how to aid automakers but insisted he did not want to leave a "major catastrophe" behind for President-elect Barack Obama in his first days in office.

Unless you want to trade this stock intraday you can’t be long GM common shares, says Guy Adami. There’s a chance they go to zero.

I’d be careful of the GM bonds too, adds Pete Najarian.

Just stay away, counsels Karen Finerman.




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Trader disclosure: On Dec. 18th, 2008, 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 (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Pete Najarian Owns (RIMM) Call Spread; Pete Najarian Owns (UYG) And Is Short (UYG) Calls; Pete Najarian Owns (HIG) Calls And Is Short (HIG); Pete Najarian Owns (PCLN) Call Spread; Finerman's Firm Owns (IBB), (MSFT), (UNH), (WLP), (AET); Finerman's Firm Owns (ROH) Calls; Finerman's Firm Owns (OIH) Puts; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (BBT), (USO)

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

Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.: Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (OFC), (DLR), (EXR), (IGE), (MAC), (DBC), (DBV), (SKT), (UA), (CLB); Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights

Charles Schwab Is A Sponsor Of "Fast Money; GE Is The Parent Company Of CNBC

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