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Can The Market Go Much Higher?

Both the Dow and S&P 500 eked out gains on Wednesday, but the moves were barely decipherable despite catalysts that should have catapulted the indexes much higher.

Reports showing a jump in home sales and solid factory orders could not drive stocks with the major indexes waffling between positive and negative for much of the afternoon.

In fact, this was the third consecutive day that equities bounced after favorable news, but then fizzled. The indecision has left some investors wondering whether the market can go much higher.

What’s the word on the Street?

Strategy Session with the Fast Money Traders

The volume was so light on Wednesday it’s hard to say whether the rally is out of steam or not, muses Pete Najarian. I think we’re seeing rotation into lower risk trades. And also I think with stocks trading in a range investors are taking profits as stocks trade at the top of their range.

I’m cautious on a correction, says Joe Terranova. We’re getting ISM next week as well as unemployment numbers and that data could be extremely positive. And as the hedge funds come back into the game in September I think they could start chasing performance.

The Nasdaq is lagging and China is negative, counters Steve Cortes. As far as I’m concerned the bulls have lost their generals.

According to Birinyi, after the last two big recessions stocks did not have a big correction, reminds host Rick Santelli.

No Correction In Rallies Following 2 Prior Recessions
Source Birinyi Assoc.
1990: 233%, 2,533 Days
2003: 95%, 1,673 Days

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MORE SIGNS OF HOUSING BOTTOM

Homebuilders were among Wednesday’s biggest winners after data showed sales of newly built U.S. single-family homes rose for a fourth straight month in July, the fastest pace since last September.

Meanwhile, the inventory of unsold homes fell to the lowest level in 16 years, leaving some investors to wonder if housing has, indeed, found its bottom?

What must you know?

I expect people will wake up one morning, feel better and start buying houses but I don’t think we’re there yet, muses Guy Adami.

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OIL THORN IN MARKET’S SIDE

Oil appears to be the wildcard in this market with crude prices dropping to near $71 a barrel on Wednesday, extending losses from the previous session.

The move was largely triggered by results from the American Petroleum Institute (API) which showed an unexpected rise in supply of 4.3 million barrels – very different from expectations which were for a 1.1-million-barrel drop.

Profit taking seems to be accelerating after the bulls pushed crude to the key psychological $75 mark for the first time since last October, crowning a near 130 percent jump in prices from the lows at the turn of the year.

What’s the trade?

I’m not ready to say the commodities trade is over, exclaims Joe Terranova. I bought Exxon, Suncor and Weatherford on Wednesday’s pullback. I still believe in this story.

I like the OIH, but wait for a pullback, counsels Pete Najarian. I think you can get Halliburton, Schlumberger and other stocks that make up this ETF, a little lower.

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TRADING THE GLOBE: WILL CHINA POP ITS BUBBLE?

China's Cabinet said Wednesday it will try to curb overcapacity and excessive investment in industries including steel and cement -- a possible side effect of its massive stimulus plan.

Regulators also will ''enhance management'' of areas including flat glass, chemicals, wind power and polysilicon production, the official Xinhua News Agency said, citing a decision announced after a Cabinet meeting led by Premier Wen Jiabao, the country's top economic official.

It said measures would include strict enforcement of environmental standards and market access.

Economists and business groups have warned that China's stimulus and efforts to boost flagging exports were creating a glut of excess capacity in a range of industries.

What’s the trade?

The idea that Beijing can be the architect of China’s entire economy seems absurd to me, says Steve Cortes. And in fact, the need for Beijing to try and control everything from central command is the problem with China.

But China will grow at double digits, reminds Joe Terranova. They have an ability to consume commodities at an unprecedented rate.

I’d look at Flour, Foster Wheeler and Shaw Group, counsels Pete Najarian. However, you may be able to get them cheaper.


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OUTSIDE THE STOCKS: TREASURYS CONTINUE HIGHER

U.S. Treasuries edged higher on Wednesday with investors generating solid demand for the $39 billion auction of 5-year notes. The auction results suggest the government is having no problem finding buyers of its debt.

"It was more than okay. Both pre- and post-auction you're not seeing much of a move in either direction," says George Goncalves, head of fixed income rates strategy at Cantor Fitzgerald, LP, in New York.

"For such a large slug of money to be taken down in a quiet time of the summer it's pretty noteworthy. It's pretty strong on the whole."

What must you know?

Right now the bond market and stock market are trading in tandem but at some point that will change, speculates Guy Adami. Personally, I think it’s the stock market that goes lower.

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WHAT WILL RISING DEFICITS MEAN FOR YOUR MONEY?

Of course with the Treasury auction comes increased debt. In fact data released earlier in the week showed the federal government faces exploding deficits and debt over the next decade.

(The debt is the total sum the government owes, while the deficit is the yearly gap between revenues and spending.)

Will massive deficits end the party by generating ugly inflation and a ridiculously weak dollar? For insights we turned to strategic investor Bill Fleckenstein, who admittedly has been very critical of the Fed’s easy money policy.

Fleckenstein is worried. Very worried. Because he thinks the dollar will lose value he's long gold and silver. But don't take our word for it. See for yourself. Watch the video now.

You can see our interview with Bill Fleckenstein at the end of the Word on the Street video.





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Trader disclosure: On Aug. 26th, 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), (SU), (XOM), (WFT); 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; Cortes Is Short (JPM); 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 (HGSI) Call Spread; 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 (TXT) Calls; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (YHOO) Call Spread; Najarian Owns (XHB) Call Spread


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