Strategy Session with the Fast Money traders
I think Tuesday’s action was bearish, reveals Guy Adami. The fact that we sold off as hard as we did suggests to me the market is going lower from here. I hate to use the word exuberant but I really think we’re getting ahead of ourselves.
The sectors I thought were going to perform well such as energy and commodities rolled over, adds Joe Terranova. That’s worrisome. Also Obama gave the market a catalyst with Bernanke. The market should have gone out on its highs but it didn’t.
I’ve been bearish on housing and wrong, admits Steve Cortes. But I think it’s important to note the strength in the housing market is at the low end. The high end continues to struggle.
I’m impressed with this market, counters Pete Najarian. All we’re seeing a little profit taking. Good traders take profits. The market can’t go up every single day.
CHART OF THE DAY: HOMEBUILDER ETF (XHB)
Positive sentiment on housing boosted shares of the XHB which hit a 10-month high. On the Halftime Report Pete Najarian added that the volume of upside call buying suggested it could go even higher
But lumber is going back to its March-lows, counters Steve Cortes. I don’t really understand how homebuilders can go up and lumber go down. There’s a disconnect there.
Part of that discrepancy is due to the composition of the XHB, explains Pete Najarian. It’s not entirely made up of builders.
Also lumber is only tethered to new home sales, not existing home sales, adds Joe Terranova. But when it comes to real estate, I think the housing unwind has hit bottom.
TOPPING THE TAPE: CONSUMER SHARES SURGE
Investors sent Walmart , Macy’s and other retailers higher after new data showed consumer confidence rose more than expected.
Specifically, the Conference Board says its Consumer Confidence index rose to 54.1 this month from 47.4 in July, far above the 47.5 level that analysts had predicted.
"Consumers were more upbeat in their short-term outlook for both the economy and the job market in August, but only slightly more upbeat in their income expectations," Lynn Franco, the group's director of research, said in a statement.
Consumer confidence is a proxy on future consumer spending, which accounts for 70 percent of the U.S. economy.
What’s the retail trade?
I’d shortJCrew ahead of earnings, counsels Guy Adami.
TOPPING THE TAPE: TRANSPORTS
Signs of economic strength also sent the airlines and shippers higher with investors betting a recovery should signal an increased need to transport materials and finished goods.
What’s the trade?
If you’re looking for a trade in the rail space, I’d look at Norfolk Southerm says Pete Najarian. Valuations seem slightly cheap.
Or if you’re looking for a short trade, look at Burlington Northern , adds Guy Adami. I think that stock is ahead of itself.
MARKET BUZZKILL: ENERGY & COMMODITY STOCKS
Oil prices fell 3 percent on Tuesday as dealers rushed to take profits from a rally that had culminated in a 10-month peak earlier in the day.
U.S. crude oil dropped $2.32 to settle at $72.05 a barrel, down from a high of $75, in the biggest percentage loss since August 14. Brent crude dropped $2.44 to $71.82.
"It looks like crude tested the $75 level and failed," says Tom Bentz, a trader with BNP Paribas.
What’s the trade?
We had an intra-day reversal off a 10-month high, explains Joe Terranova. That says to me this market has topped out.
I think the OIH could easily slide to $96, adds Guy Adami. I’d play it short with a tight stop.
If you want to play the space, I’d do it with Flour , Foster-Wheeler and/or Shaw Group, counsels Pete Najarian.
GOLDMAN LEADS BANKS HIGHER
Despite reports of increased scrutiny shares of Goldman ended the session higher.
As we told you yesterday,Goldman Sachs is struggling with an image that may become permanently tarnished.
The latest development in what’s become a string of public relations nightmares was first revealed by the Wall Street Journal on Monday, which said Goldman sometimes shared trading tips with top clients before making the information widely available to all their customers.
And now the Wall Street Journal says, securities regulators are asking for more information about these developments, presumably to determine if Goldman is responsible for any serious misdoings or worse.
What must you know?
I can’t imagine CEO Llyod Blankfein allowing anything that wasn’t completely above board, muses Guy Adami.
I still think it’s a best-of-breed stock, adds Joe Terranova.
I’m thinking the stock might be cheap, reveals Pete Najarian, even with the huge run it's had.
OUTSIDE THE STOCKS: INVESTORS STILL SEEKING SAFETY
U.S. Treasury debt prices edged higher on Tuesday as decent demand at an auction of two-year notes appeared to bode well for auctions later in the week.
The government's $42 billion sale of two-year notes did nothing to unnerve investors worried about the burgeoning national debt and suggested to some that foreign buyers would show stronger demand at auctions of five- and seven-year debt in the next two days.
Foreign and institutional investors showed robust demand, taking nearly half of the issue, above their average of about 39 percent over the last year.
What does it mean?
So far so good, says Joe Terranova, but with so much debt being issued one day the auction might not go well.
I think the talk how badly we need China to buy our debt is seriously overdone, says Steve Cortes. Americans are starting to save. We’re buying our own debt.
I want to go on record and say we need to get our fiscal house in order, says Rick Santelli.
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Trader disclosure: On Aug. 25th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Terranova Owns (AMZN), (MSFT); Terranova Owns (CCL) Puts; Terranova Is Short (SHLD), (EES); Adami Owns (AGU), (C), (GS), (INTC), (BTU), (MSFT), (NUE); Cortes Owns (SPX), (GS); Cortes Is Short Nasdaq 100; Najarian Owns (BAC); Najarian Owns (BUCY) & Short (BUCY) Calls; Najarian Owns (C) Calls; Najarian Owns (FCX), Is Short (FCX) Calls, Owns (FCX) Puts; Najarian Owns (INTC) Calls; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (PALM) Call Spread; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (YHOO) Call Spread; Najarian Owns (XHB) Call Spread
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