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Dow Drops As Yields Surge

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DOW DROPS AS YIELDS SURGE

The Dow and S&P 500 fell on Wednesday as rising yields on U.S. government Treasuries sparked worries about increased borrowing costs after the U.S. Treasury auctioned $35 billion in five-year notes.

Although the auction was generally well received, longer-dated bond prices started to fall not long after the results were announced as investors reacted negatively to looming supply, driving up yields. (The yields on bonds move inversely to their prices.)

The price of benchmark 10-year notes was down over 1-16/32 and yielding 3.74 percent on Wednesday, up nearly 20 basis points in just one day and over 1.25 percentage points in just six weeks.

The move is somewhat unusual -- stocks and bonds typically move in opposite directions. Treasuries prices typically fall when investors' appetite for riskier assets, such as stocks, increases.

Strategy Session with the Fast Money Traders

The market has started to show us where it wants to go – and where it wants to go is down, speculates Guy Adami.

Stocks are stuck because pension funds aren’t buying, adds Steve Grasso. They’re on the sidelines. As a result, hedge fund managers are whipping this market around.

But I think the S&P holds support at 883, adds Pete Najarian.

It seems to me the market is consolidating, adds Joe Terranova. Considering the action in the market, right now if you’re bullish you’re on the defensive.

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BREAKING NEWS: PEQUOT WINDING DOWN

CNBC’S David Faber reveals that Art Samberg's hedge fund Pequot will be winding down over the next several months.

The fund was unable to overcome negative publicity stemming from investigations against Samberg by the SEC and U.S. Attorney’s Office, even though he was never charged.

"Those agencies closed their investigations in 2006 without bringing any charges, but Pequot nonetheless suffered from adverse publicity," Samberg wrote in the letter, which was obtained by CNBC. "Public disclosures about the continuing investigation have cast a cloud over the firm."

I think consolidation in the hedge fund space is a good thing, muses Joe Terranova.

The news makes me think investment banks are the place to be, adds Pete Najarian. I like Goldman and Morgan . They’re well positioned.

On the floor of the NYSE I see big investors putting money in Goldman and JPMorgan , adds Steve Grasso. They feel safer with these big banks than with many other financial firms.

The problem with the big bank trade is that a lot of these banks have already run, counters Guy Adami. You have to be careful.


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GM BANKRUPTCY NEARS

Investors are betting that a General Motorsbankruptcy is now all but inevitable now after the deadline has come and gone for an alternate plan in which bondholders could have swapped debt for stock.

I think the bankruptcy is fully priced into the space, speculates Joe Terranova. I have rivals Ford , Toyota and Tata on my radar. As far as I’m concerned they’re all buys on a pullback.

Goldman is positive on Ford, adds Guy Adami. I like Ford as well – and I like Borg Warner but not here -- back around $24.

If Ford pulls back to $5, I think it’s a great entry point, echoes Pete Najarian.

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TOPPING THE TAPE: APPLE

RBC Capital's Mike Abramsky came out with a new note reiterating his buy on Apple and his $165 target. He, like many others, expects new iPhones and lower prices at Apple's developer's conference on June 8.

Abransky tells Fast Money, “we have data that shows Apple could see 30-40% improvement off an iPhone price cut to $99.”

So who loses?

“Folks who lose on that are probably Nokia and Motorola ,” Abransky adds.

I think it hurts Palm , adds Pete Najarian. But I’m more interested in what happens with the netbook. I want to know if Apple is going to jump into that market.

It’s hard to jump into Apple stock at these levels, counsels Guy Adami, but if you’re already long I think you can stay in through the developers conference.

I love Apple but RIMM is where it’s at, adds Steve Grasso.

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OIL TOPS $63

Oil prices hit a six-month high near $64 a barrel on Wednesday after Saudi Arabia, OPEC's biggest member, said the global economy had strengthened enough to cope with oil at $75 to $80 a barrel.

U.S. crude oil for July delivery rose $1.00 to settle at $63.45 a barrel, after earlier touching $63.82, the highest level since mid-November.

I think the star in the energy space is Petrobras, counsels Joe Terranova.

And elsewhere in commodities, be careful of the gold miners, adds Guy Adami.

I like the engineering stocks such as Fluor and Foster Wheeler , adds Pete Najarian.

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BULL MARKET OR BS

With the S&P 500 up against it’s 200-day moving, John Kosar of Asbury Research suggests the market may be at an inflection point.

Which way are we heading, next?

Brian Kelly of Kanundrum Research thinks the rally is still alive and well. He thinks we’re in a Triple “R” rally. Here’s how he sees it playing out.

R BENEFICIARIES HOW TO PLAY

Reflation Commodities Ag, Metals, Miners
Recapitalization Equities Diana Dhipping (DSK),
Stifel Financial (SF)
Retail Resilient Retailers Amazon (AMZN),
RIMM (RIMM),
Wal-Mart (WMT)

Symbol
Price
 
Change
%Change
BB
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SF
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WMT
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Trader disclosure: On May 27th, 2009, 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), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Terranova Owns (ABT), (TER), (XBI), (RIMM), (IBM); Terranova Is Short (XOM) Call Spread; Terranova Owns (DIS) Call Spread; Najarian Owns (ISIS); Najarian Owns (AMAT) Calls; Najarian Owns (BX) Call Spread, (INTC) Call Spread, (MOS) Call Spread, (XHB) Call Spread, (XLB) Call Spread, (XLU) Call Spread; Grasso Owns (V), (XLF), (RIMM), (AMZN); Grasso's Firm Owns (MSFT); Grasso's Clients Owns (JPM), (OXY), (AMR), (V)

Kelly Owns (DBA), (DBB), (DSX), (GDX), (FXC), (INT), (INT), (NIB), (SLV), (SWC)
Kelly Owns (AMZN) Call Options, (DSK) Call Options, (GDX) Call Options

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