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Doug Kass: Market Generating Definitive Sell Signal

We know why you like Fast Money; the desk brings you a wide range of trading ideas from some of the Street's most celebrated figures.

On Wednesday the Fast traders turned to strategic investor and CNBC contributor Doug Kass, president of Seabreeze Partners for his insights.

Kass is widely followed for his market timing. He correctly called a bottom last summerand also predicted the crisis lows in March 2009.

In a live interview we asked Kass about the sell-off, Yahoo! and a company that Warren Buffett may want to buy. As you can imagine he had lots of ideas. They all follow:

Market Generating Definitive Sell Signal

It’s no secret that Kass is bearish, he’s been skeptical of the rally for quite some time. And he remains convinced that the market is heading lower. He cites both fundamental and technical signals.

Looking at fundamentals, he thinks Street estimates are too high broadly because “energy prices will maintain at elevated levels and commodities prices are rising.”

In other words, he doesn’t think price targets take into account the ripple from higher oil. “Already we’re seeing sequential rate of growth and operating profits slowing.”

Farrell Sentiment Index.jpg

And Kass thinks technical signals are equally negative. Kass points to the Farrell Sentiment Index to support his thesis.

This technical measure “takes the number of bulls in the market (as reported by the American Assoc of Individual Investors) and divides by the bears plus half the neutrals,” explains Kass.

”When the ratio is under .50 and rising it’s a bullish signal. When it’s over 1.5 it’s bearish and the ratio rose to 1.50 on the week of January 14th – a definitive sell signal,” says Kass.


Buffett Buying Spree

As you may remember Warren Buffett made headlines a few days back after he said in his widely read annual letter the conglomerate was looking to make "major acquisitions."
And with Berkshire Hathaway's cash holdings totaling $38 billion at the end of the year, how will he put that money to work?

It wouldn’t surprise Doug Kass if the Oracle of Omaha buys Colgate Palmolive.

Because Kass believes the market is fragile he only thinks a few sectors are going to hold on. “Staples and necessities,” he says.

Kass thinks that's something Buffett will factor into his next move. “And with Buffett looking for another target, I suspect a large consumer products company is on his menu,” he says. "I wouldn't be surprised if he (buys) a company as large as Colgate Palmolive."

Shout Yahoo for Yahoo!

Shares of Yahoo jumped Wednesday after a published report said the Internet company is in talks to sell its stake in the independently operated Yahoo Japan for up to $8 billion.

As you might remember, on December 6th Kass told us that he expected Microsoft would acquire Yahoo at $24/ share.

Although he didn't say outright if he was still expecting a deal he did tell the desk, "Microsoft has related that the search integration with Yahoo is going better than expected."

In addition, he thinks it's positive that “Yahoo management has indicated that the company is exploring alternatives and the company’s core business is improving.”

Kass tells us that he’s still holding onto Yahoo.


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Trader disclosure: On March 2, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns (AAPL); Seymour owns (BAC); Seymour owns (BP); Seymour owns (F); Seymour owns (FXI); Seymour owns (GE); Seymour owns (GM); Seymour's firm is short (POT); Seymour firm is short (SU); Seymour's firm owns (TTM); Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (SPY); Finerman's Firm Is Short (MDY); Finerman's firm is short (XRT); Finerman's firm is short (IJR); Finerman's Firm Is Long S&P Puts; Finerman's Firm Is Long Russell 2000 Puts; Finerman's Firm And Finerman Own (AAPL); Finerman's Firm Owns (BAC) Leap, Finerman Owns (BAC); Finerman's Firm Owns (BBY); Finerman's Firm And Finerman Own (BP); Finerman owns (C); Finerman Owns (GOOG); Finerman's Firm And Finerman Own (HPQ); Finerman's Firm Owns (IBM); Finerman's Firm Owns (JPM), (JPM) Leap; Finerman Owns (JPM); Finerman's firm owns (M); Finerman's Firm And Finerman Own (MSFT); Finerman's firm owns (TGT); Finerman's Firm Owns (WMT); Terranova owns (VRTS); Terranova owns (C); Terranova owns (UPL); Terranova owns (ABT); Terranova owns (MS); Terranova owns (PBR); Terranova owns (BAX); Terranova owns (TEVA); Terranova owns (CVI); Terranova owns (RSX); Terranova owns (SU); Terranova owns (CNQ); Weiss owns (WFT); Weiss owns (BTU); Weiss owns (MEE); Weiss owns (DVN); Weiss owns (COP); Weiss owns (HK); Weiss owns (AAPL); Weiss owns (QCOM); Weiss owns (MSFT); Weiss owns (CSCO); Weiss owns (MXIM); Weiss owns (HBAN); Weiss owns (JPM); Weiss owns (FAS); Weiss owns (AGU); Weiss is short (X); Weiss owns S&P puts

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