LONGEST LOSING STREAK SINCE RALLY BEGAN
With over $100 billion in new Treasuries being issued next week, fear that our growing government debt could trigger new woes dragged down both the Dow and S&P on Friday.
Ratings agency Standard & Poor's rattled markets one day earlier when it threatened to cut Great Britain's AAA credit rating because of the danger of soaring public debt, sparking fears of a similar action against the United States.
With stocks closing lower for the fourth consecutive day, we've just recorded the longest losing streak since the rally began. How should you be trading?
Strategy Session with the Fast Money Traders
The S&P closed below 888 but I’m not concerned, says Tim Seymour. We’re up on the week. Banks said they’re paying back TARP, that’s good news!
We still continue to hold over 883 on the S&P, reminds Pete Najarian. That’s a key level. And volume was very light Friday so don’t read too much into the action.
It seems to me there was a rotation out of tech and into financials, adds Steve Grasso. That’s what happened in the stock market on Friday.
Looking ahead, there will be an abundance of housing data next week and if those numbers are ‘less bad,” I think stocks could march higher, speculates Joe Terranova.
U.S. government bond prices extended their decline on Friday, pushing benchmark yields to six-month highs as investors worried about the country's financial position amid sustained selling of the dollar.
Underlying the trend was anxiety over the growing government debt: $2 trillion in new bonds expected to hit the market in fiscal 2009 alone. Of that total, $101 billion will come next week, matching the record.
If there’s not a lot of demand for the Treasuries, the trade is to bet on a declining dollar, reveals Joe Terranova. That means long gold, long commodities and play the dollar from the short side.
The dollar fell on Friday to its lowest level in five months against a basket of currencies. The slide largely stems from fears that S&P could do to the United States what it did to Great Britain; threaten to strip the nation of its triple-A credit rating.
It seems to me the dollar just gets weaker from here, muses Dennis Gartman, author of the Gartman Letter. As a result the currency winners should Canada and Australia. And because of the declining dollar I’m also bullish of grains and copper.
And you can play that theme with the FXC and FXA , adds Tim Seymour.
OBAMA SIGNS CREDIT CARD BILL
Discover Financial Services , American Express and Capital One were closed lower after word hit the Street that these and other credit card companies may face further rating downgrades as new legislation to protect credit card borrowers crimps their earnings.
"The banks most impacted by these changes are likely the 'monoline' card issuers such as Discover and American Express. As well, we note that more than half of Capital One's managed revenues are from its U.S. card business," CreditSights analysts David Hendler and Baylor Lancaster said in a report.
Whether they’re processors or actual lenders I think the bill harms credit card companies across the board, muses Tim Seymour.
I’d get long the processors, counters Steve Grasso.
TOPPING THE TAPE: FERTILIZER STOCKS
Citigroup has turned bullish on a large number of fertilizer companies; both Potash and Mosaic were upgraded to "buy," and Agrium to "hold".
Also, options action in the Market Vectors Agribusiness suggests big investors are bullish on the sector, explains Pete Najarian. But I’d wait for a pullback.
GM BANKRUPTCY COMING NEXT WEEK?
It’s possible that GM could declare bankruptcy by the end of next week. The White House has said although talks could go right up to the June 1 deadline, they won’t go beyond.
That kind of tough talk puts the pressure on bondholders who are being asked to forgive debt in exchange for a 10 percent stake in a reorganized company. In the past, representatives of the bondholders have rejected that offer as insufficient.
My instinct is that the bondholders push GM into bankruptcy, muses Joe Terranova.
It seems that bankruptcy is priced into the options, adds Pete Najarian.
PHARMA, BIOTECH DEALMAKING CONTINUES
J&J announced late Thursday that it plans to acquire cancer drug developer Cougar Biotechnology Inc for about $930 million, setting off further speculation that large drugmakers were trolling for biotech bargains, especially in oncology.
Shares of Oncogenex Pharmaceuticals Inc and Poniard Pharmaceuticals jumped on Friday as investors bet they could become the next takeover targets.
It seems to me Johnson & Johnson has a great game plan, muses Pete Najarian. They’re diversifying and acquiring a great pipeline.
In the space I like Abbott Labs, adds Joe Terranova. I think the whole space is under-invested.
SUMMER SET-UP: TRAVEL SEASON TAKES-OFF
Shares of airlines stocks slipped on Friday ahead of the summer travel season as investors bet rising oil prices would put a crimp in profitability.
“Traffic is strong but the yields are under pressure,” explains JetBlue CEO Dave Barger tells Fast Money.
However, he doesn’t think oil prices have too much to do with it. Instead Barger tells us, "the malaise in the economy has many people just staying closer to home.”
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Trader disclosure: On May 22nd, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AAPL), (BBT), (EEM), (FLR), (TTM), (INFY); Seymour is Short (FCX); Terranova Owns (ABI), (JOYG), (XBI), (TER); Terranova Owns (DIS) Call Spreads; Terranova Owns Oil Futures; Terranova Owns Nat Gas Futures; Terranova Owns (DIS) Calls; Terranova Owns June Gold Futures; Grasso Owns (AMZN), (RIMM), (V); Grasso's Clients Own (AMZN), (PG), (X), (MA), (VA), (ALL), (AMP), (JPM), (WFC), (SUN), (PBR), (POT), (MOS), (MSFT), (IBM), (XLE); Najarian Owns (ISIS), (BCSI); Najarian Owns (APC) Call Spread; Najarian Owns (AMD) Calls; Najarian Owns (BX) Calls; Najarian Owns (INTC) Calls; Najarian Owns (PALM) Call Spread; Najarian Owns (MOS) Call Spread; Najarian Owns (XHB) Call Spread; Najarian Owns (XLB) Call Spread; Najarian Owns (XLU) Call Spread
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