Stocks Stall at ’09 Highs


After the S&P 500hit its 2009 high last Friday, the major averages dropped marginally to start the week - the Dow was down 0.34%, the S&P 500 declined 0.33% and the Nasdaq dipped below 2000 – but the market remains close to its year-to-date high.

On a down day, the sectors with the most strength were Health Care and Energy, boosted by Merck and Pfizer, while Citigroup and Bank of America led the financial sector. One of the big stories of the day was the dollar’s strength compared to the Euro and British Pound, moving ahead of the Fed meeting later this week.

What's The Word On The Street?

The dollar’s movement ahead of the Fed meeting was pretty evenly spread out, says Tim Seymour, who mentions that the mining sector got the worst of the downward move today. In the financial sector, Goldman Sachs underperformed but in the sector Guy Adami likes Raymond James , which he says has been a great play recently, but has gotten less attractive as it’s moved to higher levels.

What you saw on Friday was a late-day reversal, adds Joe Terranova, and today stocks didn’t pick up their gains. Today was a nothing day, he said, where traders are waiting to see what happens in the FOMC meeting and the treasury auction later this week. Today has had about half the normal options activity, adds Pete Najarian.

I don’t believe in commercial real estate, says Guy Adami, but a name that has been doing very well recently is Acuity Brands . There’s big short interest in this name, he says, and advises you to consider it as a shorting opportunity.

A Chorus of Voices: The Recession Is Over

The recent rally has added to optimism in the markets, and some market insiders are predicting that the market is just now pulling out of the recession. Blackrock Vice Chairman Bob Doll was one of these voices, saying: "I think we are in the process of ending here. Look, it doesn't end in every part of the economy on a given day. It is a process. But just like there was a bottoming process for the equity market, I think there is a bottoming process for the economy. And when the National Bureau of Economic Research gets around to it probably early next year they will tell us the recession ended maybe as we are speaking."

But is this still tradable, or have players on the sidelines missed their chance?

Tim Seymour reminds us that this is not your mother’s recession, commenting on the idea that the rally has run its course, saying that the upturn in the market has been justified and appropriate. The biggest concern moving forward is commercial real estate, says Joe Terranova, predicting that it will be a big topic in this week’s FOMC meeting.

Pete Najarian thinks it was an important move when Goldman Sachs put Merck on their conviction buy list and Eli Lilly on their conviction sell list. He likes Goldman’s moves with respect the pharmaceutical names, such as Johnson & Johnson and Merck who are attractive in part because of their dividends.

Is The Dollar Rebound For Real?

The dollar’s move higher is more of a technical move, says Tim Seymour, who brings up the supposed inverse relationship between the dollar and the commodities index and points out that the later has been flat.

The implications of a dollar rally is what you want to focus on, adds Joe Terranova, the unwind of the carry trade and the dollar itself being a funding currency is what is pushing the greenback, and the implication of this continued trend is that oil, copper and other resource commodities will dip lower. In order to move higher, you have to work off inventory in the commodities space, he says. Seymour agrees, as commodities were relatively flat and those that moved were somewhat counter-intuitive. “I don’t think that trade is over” he says.

Government Auction Action

With the US government is preparing to auction off $75 billion in debt in the next week, what does the weakness in demand for bonds mean for the stock market? Rick Santelli has seen international investors buying into the dollar, and sees the auction going well, although there is always room for wildness in auctions.

To see more of Rick’s analysis and predictions of the upcoming bond auction, check out the video!

How do you position yourself for the auction? Guy Adami thinks the Proshares Ultrashort 20 is worth looking at, but this is not for the faint of heart. You need to pull some money off the table for the equities, adds Pete Najarian, suggesting the strategy of buying puts or puts on protection, as stocks have had huge moves and he thinks it’s possible a pullback is on the horizon.

Tech in Turmoil?

With major names in the tech sector down in Monday’s trading, some of the biggest players are the ones hurting the most. There is uncertainty in the smartphone market, with speculation that Apple may draw out a game-changing deal with Verizon, hurting names like Palm and Research in Motion, the later of which received a downgrade.

One name in tech that has been performing nicely is Western Digital , points out Guy Adami, which hit a 52-week high during intraday trading, although it finished slightly down. He sees a $59 price target on the stock as very realistic.

I think you’re seeing a light sell-off in technology, says Pete Najarian, he sees strong names and Hewlett-Packard’s earnings next week and Microsoft’s new operating system later this year as a potential catalysts for the sector. Technology is not broken, this is just a pause, he says.

The Dow Leader: McDonalds

McDonalds does everything right, says Guy Adami, although the stock itself doesn’t necessarily reflect that. Compare that to YUM! Brands , which is approaching a 52-week high, although the company is more expensive on valuation than McDonalds. Partly for this reason, Adami sees YUM as a better trade because of where it is headed, while McDonalds could be headed back to $60. “I love where McDonalds is going… the numbers are impressive” says Pete Najarian, who also likes the stock’s dividend. McDonalds is exhibiting resiliency in a tough market, says Joe Terranova.

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Trader disclosure: On Aug. 10th, 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); Najarian Owns (C) Calls, Owns (CSCO) And Is Short (CSCO) Calls, Owns (FCX), Is Short (FCX) Calls, Owns (FCX) Puts; Owns (GS), Is Short (GS) Calls, Owns (GS) Puts; Owns (INTC) And Is Short (INTC) Calls; Owns (JPM) And Is Short (JPM) Calls; Owns (MCD) Call Spread; Owns (MS) And Is Short (MS) Calls

Najarian Owns (MSFT) And Is Short (MSFT) Calls; Owns (PALM) Call Spread; Owns (TCK) Call Spreads; Owns (TIBX) Calls; Owns (YHOO) Call Spread; Terranova Owns (AMZN), (MCD), (MSFT), Is Short (F), Terranova Works For (VRTS)

Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO

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