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September Begins And The Selling Starts

Investors struggled to make sense of the market Tuesday after stocks tumbled on heavy volume sending the S&P 500 below the psychologically important 1000 threshold.

Negative sentiment prevailed despite relatively strong economic data, which showed manufacturing expanded in August for the first time since January 2008.

Instead investors remained jittery for three major reasons 1) nagging concerns about the health of banks, 2) the strength of China’s recovery, and 3) the widely held belief that stocks are more likely to sag in September than any other month of the year.

How should you trade?

Strategy Session with the Fast Money Traders

Stocks don’t lie, people do, muses Guy Adami. I think it’s a preview of things to come. The next stop on the S&P is probably 970 and we’ll have to see if the market holds there.

I would have expected to see asset allocation on the first day of September, adds Joe Terranova. but we didn't. And to make matters worse, the market just refuses to rally on good news. That says to me it’s going to pullback.

I agree the market is tired right now, echoes Pete Najarian. And the big volume is important too.

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THE SELL OFF: BANKS POUNDED

The financials led the market lower as investors grappled with growing speculation that another shoe might drop on the sector.

“The chatter from (some) hedge funds is that there is a bank default", said our very own Jon Najarian in a Reuters interview.

Meanwhile options action in Wells Fargo exploded on speculation the bank may be planning a secondary. However, published reports said the bank plans to repay funds obtained from the government’s bank bailout program in the near future without raising equity.

"We will pay it back, but we’re going to pay it back in a shareholder-friendly way,” John Stumpf, president and chief executive officer of the San Francisco-based lender, said in an interview today on Bloomberg Television. ‘We are now earning capital so quickly, organically, we don’t want to dilute our existing shareholders.”

What’s the trade?

I think Wells Fargo trades down to $24, speculates Guy Adami. I’d play it short.

It seems that options investors are placing bets that Wells goes lower, adds Pete Najarian.

I don't see why anybody would buy Wells Fargo when they could buy JPMorgan, adds Joe Terranova. And elsewhere in financials, I’m watching the action in Goldman, adds Terranova., I find Goldman is the best “tell” for the broader market.

There was also talk that CIT was going to miss an interest payment, adds Seymour. That was bearish for the sector, too.

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THE SELLOFF: ‘DASH FOR TRASH’ NAMES TUMBLE

For the second consecutive day the so-called dash for trash names tumbled with AIG , Fannie and Freddie all closing in negative territory.

What’s the trade?

There are no fundamentals behind these trades, explains Pete Najarian. These stocks are probably worth little to nothing. This is momentum trading. Be careful.

In the space I’m watching Hartford, adds Guy Adami. I’d take profits.

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THE SELLOFF: OIL SLAMMED AGAIN

U.S. crude oil futures ended lower for a second day in a row dragged down by the weak stock market and the potential of a stronger dollar.

"The dollar is strengthening and equities are coming off hard, so we did the same," explains Tom Knight, a trader at Truman Arnold.

What’s the trade?

I still don’t believe in going short oil, says Joe Terranova. I’d just move to the sidelines.

The OIH is pulling back, reminds Pete Najarian. I think $100 could be an entry point.

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THE SELLOFF: METALS, MINING NAMES HAMMERED

Despite relatively strong economic data, which showed manufacturing expanded in August for the first time since January 2008 jittery investors sold natural resource names including copper producer Freeport McMoRan.

What’s the trade?

Again, I caution investors not to short these stocks, says Joe Terranova.

I agree with Joe. Copper should have been soaring on China’s PMI numbers, adds Tim Seymour. And I’d keep an eye on Mosaic , adds Seymour. With Vale and BHP looking to get into the fertilizer game this company could be a takeover target.




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Trader disclosure: On Sept. 1, 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); Seymour Owns (APPL), (BAC), (F), (SBUX); Seymour's Firm Is Short (FXI), (PBR), (RIMM); Terranova Owns (AMZN), (SU), (WFT); Terranova Is Short (SHLD), (TM); Terranova Owns (GS) Puts; Terranova Owns Dec. Gold Futures; Terranova Works For (VRTS); Najarian Owns (BAC) & Short (BAC) Calls; Najarian Owns (BUCY) & Short (BUCY) Calls; Najarian owns (C) Calls; Najarian Owns (HGSI) Call Spread; Najarian Owns (FCX) Call Spread; Najarian Owns (JPM) & Is Short (JPM) Calls; Najarian Owns (MS) And Is Short (MS) Call; Najarian Owns (MSFT) And Is Short (MSFT) Call; Najarian Owns (PALM) Calls; Najarian Owns (TEVA) Calls; Najarian Owns (V) & Short (V) Calls; Najarian Owns (WFc) Put Spread; Najarian Owns (YHOO) Call Spread ; Najarian Owns (MOS) Calls

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