Market Pros: Stocks On Precipice Of Violent Move

The S&P snapped a three-day winning streak on Tuesday and now sits at a very precarious level, at least from a technical perspective.

The S&P closed a hair below its 200-day moving average after crossing above it on Monday. While the failure to hold above the level is a potentially bearish signal, the fact that it ended so close to the level makes it less negative.

Meanwhile, the index's 14-day moving average line crossed over its 50-day moving average, creating a so-called "golden cross" that indicates positive short-term momentum.

What should you be watching, now?

Instant Insights with the Fast Money traders

We’re on the precipice of something very important, muses Guy Adami. I think the move will show its face in the next couple weeks and whichever way it is – I expect the move will be violent.

Speaking of moves, you’ve heard a lot of talk about the 200-day in the S&P which is 1113, but I’m now focused on the 100-day in the S&P which is 1128, reveals Joe Terranova. We haven’t elevated above that level since May 13th. I’m looking for the market trade above that range to confirm the rally. My bias is that the second half of the year will be favorable for equities.

I'm also watching gold and Treasuries as a market tell, Terranova adds. That's because I believe we need to see money rotate out of safe havens and into equities. As a result I’m watching for gold to break below 1144 and the yield in Treasuries to break above 3.13.

As far as I’m concerned the recent move higher is a correction in an overall downtrend, says Brian Kelly. But I’m not playing the market short right now. Any day the market can swing hard – and in either direction.

On June 21st we traded above the 100-day that Joe mentioned above, adds Steve Grasso and then the market plunged down to 1010. Joe’s right the 100-day is very important. But it’s not good enough to just close above or below technical levels we need to close above or below for 2-3 days for confirmation.

I’m watching 23.38, the 200-day in the Vix , says Jon Najarian. Last time we hit that level we bounced higher but this time we pushed through it. If the Vix doesn’t break back to the upside I'd take it as a signal that we can sustain the rally.

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MARKET BUZZKILL: COMMODITIES

Metals experienced some of the biggest declines Tuesday with gold falling sharply and copper snapping a 6-day winning streak.

What’s the trade?

Technicals do not set up well for gold, says Guy Adami. Remember, gold goes down a lot faster than it goes up.

I’m watching 1144 as a key level in gold, says Joe Terranova. I’m short but I think the move lower is about investors re-allocating money out of this safe haven and into equities.

I’m watching 112 on the GLD, says Jon Najarian. If it breaks that I think we see a sharp correction.

Elsewhere in the metals space Freeport had an outside day, adds Adami. That gives me pause.

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ANALYZE THIS: BP

Shares of BP traded lower on Tuesday after the oil giant reported a record loss and confirmed that Bob Dudley will replace Tony Hayward as chief executive on October 1st. BP also said it would take a charge as a result of the Gulf of Mexico oil spill amounting to $32.2 billion.

Meanwhile the SEC and the DOJ have launched a probe into market trading connected to the spill.

What must you know?

Looking at the SEC issue, If BP did not tell investors exactly the extent to which they knew the leak was a problem then they may be looking at a liability, explains Jon Najarian. It could be a $5 billion liability.

It seems to me that BP is in the upper end of its range and I wouldn’t be surprised to see it back down to $34, adds Guy Adami.

In the next two weeks either the top kill or the bottom kill should end the spill, says Whitney Tilson of T2 Partners on the Halftime Report. That will be very important from a psychological stand point. Yes the costs of the clean up will be severe but BP will be able to spread them out over time.

Meanwhile the company is reporting spectacular earnings and cash flows. It should easily be able to earn its way out of trouble, Tilson adds.

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BEYOND BP

Senate Dems unveiled new energy legislation on Tuesday and big oil stocks felt the pressure. Should you expect to see continued weakness in the sector?

Find out from Deutsche analyst Paul Sankey. Watch the video now!






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Trader disclosure: On July 27, 2010, 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), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Grasso owns (ASTM), (ABK), (BAC), (BA), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST); Kelly owns (BP) puts; Jon Najarian owns (AAPL) call spreads; Jon Najarian is long and short (BIIB) calls; Jon Najarian is long and short (MSFT) calls; Jon Najarian owns (SNDK) and is short calls; Terranova owns (AMZN), (EMC), (CREE), (BRCM), (LRCX), (COP), (AXP), (BMO), (CSX), (PEP), (CVS), (GS), (PCP), (C), (APA), (FCX), (JOYG), (MMM), (MOS), (UAUA), (WYNN), (GOOG), (BBY), (SU), (KOL), (XBI), (SWN), (BAX), (JNPR); Terranova is short (GLD)

For Steve Grasso:
Stuart Frankel & Co and it’s partners own (BAX)
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (DHR)
Stuart Frankel & Co and it’s partners own (DYN)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (IP)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (SYMC)
Stuart Frankel & Co and it’s partners own (TBT)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (TRV)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)

For Joe Terranova
Terranova works for (VRTS)
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners owns more than 1% of (CASS)
Virtus Investment Partners owns more than 1% of (LDR)
Virtus Investment Partners owns more than 1% of (LPHI)
Virtus Investment Partners owns more than 1% of (MGRC)
Virtus Investment Partners owns more than 1% of (XLB)
Virtus Investment Partners owns more than 1% of (XLP)
Virtus Investment Partners owns more than 1% of (XLY)
Virtus Investment Partners owns more than 1% of (XLI)
Virtus Investment Partners owns more than 1% of (XLK)
Virtus Investment Partners owns more than 1% of (XLU)
Virtus Investment Partners owns more than 1% of (SUBK)
Virtus Investment Partners owns more than 1% of (WDFC)
Virtus Investment Partners owns more than 1% of (YDNT)
Virtus Investment Partners owns more than 1% of (DRYS)

For Brian Kelly
Accounts managed by Kanundrum Capital own (UNG)
Accounts managed by Kanundrum Capital own (BAK)
Accounts managed by Kanundrum Capital own (ORI)
Accounts managed by Kanundrum Capital own (VIV)
Accounts managed by Kanundrum Capital own (XLF)
Accounts managed by Kanundrum Capital own (GME)
Accounts managed by Kanundrum Capital own (OIH)
Accounts managed by Kanundrum Capital owns Euros
Accounts managed by Kanundrum Capital owns Australian Dollars
Accounts managed by Kanundrum Capital own (TBT)
Accounts managed by Kanundrum Capital own (AAPL) calls
Accounts managed by Kanundrum Capital are short (GLD)
Accounts managed by Kanundrum Capital are short the Yen
Accounts managed by Kanundrum Capital are short the US Dollars

For Paul Sankey
(XOM), (COP), (CVX), (VLO) is an investment banking client of Deutsche Bank
Deutsche Bank received non-investment banking compensation from (XOM), (COP), (CVX), (OXY) (VLO) in the past year.
Deutsche Bank provided non-investment banking securities related services to (XOM), (COP), (CVX), (OXY) (VLO) in the past year.
Deutsche Bank owns 1% or more of (VLO), (COP) of any class of common equity securities.

For Dr. Mark Schoenebaum
ISI seeks to do business with (AMGN), (GILD), (GENZ), (BIIB), (VRTX), (HGSI), (UTHR), (AMLN), (ACOR) and has received non-investment banking compensation in the past 12 months.

For Colin McGranahan:
Colin McGranahan maintains long positions in Kohl's Corp. (KSS), Amazon (AMZN), Ross Stores Inc. (ROST), Safeway Inc. (SWY) and Gap Inc. (GPS)
Bernstein or an affiliate expects to receive or intends to seek compensation for investment banking services from BBY

Scott Nations
***No Disclosures***


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