Market Rotation Bolsters Financials - Fast Money Recap (7/18/08)

by: Joan Wickham

Recap of CNBC's Fast Money, Thursday July 18.

Wells Fargo (NYSE:WFC), Fannie Mae (FNM), Freddie Mac (FRE), JPMorgan (NYSE:JPM), Citigroup's (NYSE:C), Proshares Trust Ultra Financial (NYSEARCA:UYG)

“This has been the best week since April 18” traders said On CNBC's Fast Money TV show.

Melissa Lee in for Ratigan asked the traders, "Is this what a market bottom looks like?"

Jeff Macke said, “Yes this is a bottom, but is this THE bottom? Probably not.” Financials with help from the government got us started on a small rally, but we will see very soon how this all plays out.

Najarian stated that Wells Fargo helped out a lot this week. Fannie Mae and Freddie Mac “took an impressive turn and suddenly they don't look quite so bad.” This week was a story of rotation Najarian said.

Karen Finerman said that if “Fannie and Freddie can get the public markets to bail them out it, will be better for them.” She advises that the government bailing them out will be bad for the stocks and hurt them in the end. Citigroup's earnings, or lack there of, weren't bad, but were not that great either, Finerman added.

Joe Terranova added that the “banks just need time to unwind this credit crisis.” They can’t liquidate at this time, but expectations within the market are extremely low.

Najarian said that if you are looking for a way into the financials, take Proshares Trust Ultra Financial, or any of the ETFs, as these are the safest bet.

Macke said that the lesson of this week is, if you have been "through this kind of market, you should know that you have time" to wait this out for the right time to buy.

Lee then moved the group on to crude, as it was down to $129 on the day.

Macke said, “We have broke some important support. The technical uptrend is gone.” Lots of big traders are getting out, Macke said, as “the trend is broken, and you won't get rich fighting the trend.”

Terranova added that “at this level, there is a lot of talk $80 oil, but this isn't necessarily true." However, there are definitely “ways to play this market as it goes lower.”

General Motors (NYSE:GM)

Moving on to General Motors, Najarian said that “every time you see a pullback in oil, GM and airline stocks will gain. That's the way to play oil right now.”" You have to keep an eye on these stocks and get in and get out quick, Najarian said.

Macke disagreed and said the stock is “still going bankrupt in the big picture.” 

Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM), Sandisk (SNDK),

Shifting gears, the traders moved on to tech stocks Microsoft and Google.  Google admitted in their latest earnings report that the economic slowdown had hurt their business. Less than stellar earnings by Microsoft caused Lehman to cut its price target for the stock. Najarian stated that Microsoft has done nothing this year, “but take a look at IBM, they are now what Microsoft once was.”  “IBM seems to be doing things right, turning profits and acquisitions into something good”, Najarian said.

Finerman says Microsoft looks good. At this valuation, “I would buy it here,” she said.

Macke disagrees and stated that Microsoft “is a big dumb conglomerate that has done less with more.” 

Also I’d look at SanDisk says Najarian. “We need more and more storage and that’s what they do. I love this stock at $17.”

Financial Short-squeeze

Morgan Keegan analyst Bob Patten joined the show to talk about the sudden rally in financials.

We would like to think this rally is sustainable, Patten said, but “this is the biggest government-induced financial short-squeeze we have ever seen.” Earnings weren't that good, they were just “less bad,” with all the major banks, he added. The shorts have been ridden all the way down, but we need housing to stabilize and this is just not happening. You cannot be long banks yet. 


Switching over to Apple, Lee stated that the tech sector was pummeled today and asked whether Apple can save the tech sector.

Najarian said, Apple will likely beat expectations, but " what you really need to look at is Sandisk. It could be setting up to beat earnings and revenue. "Love them at $17 a share," he said. Coming back to Apple, Najarian added that smart phones are definitely hot right now "and Apple is in the driver's seat." I like going into these earnings, "given what Apple will probably say."

Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), ConocoPhillips (NYSE:COP), Baker Hughes (BHI)

Some energy services stocks appear poised to perform well despite the recent slide in crude prices. Remember crude is still at historically high levels. Oilfield services provider Schlumberger said Friday its second-quarter profit was nearly 13 percent explained Peter Najarian. 

Within the energy sector the traders then discussed Halliburton.

Najarian said, "I like everyone who comes out in this sector and I like what's going on right now." Ahead of earnings I’d play any of the stocks mentioned above (Halliburton, ConocoPhillips, Baker Hughes) from the long side, Pete says.

Macke warned that "you can trade them but you have to have an exit plan with these stocks right now." Remember the technicals are broken.

 Lehman (LEH), Merrill Lynch (MER), Morgan Stanley (NYSE:MS)

Jamie Dimon is not the only one suggesting consolidation in the banking area. Charlie Gasparino joined the show and was asked, “Will the independent investment bank survive and I think the answer is no. I think they need to merge with money-center banks.” They can't take on risk because they have been downgraded. They need to merge, but where are the banks to buy them right now?

“Plus we are probably going to get some more writedowns from Lehman, Merrill Lynch, and Morgan Stanley.”

Macke added that "the problem with the merging scenario, though, is that none of these banks will sell."

Gasparino believes "these three banks have no way to make money in the markets in the future" and they need to start looking for ways to take in more revenue.  “I think they know they have to merge. The trouble is who will buy.”

Cinemark (NYSE:CNK)

Ending the show with movie theater stocks, the traders were joined by Cinemark CEO Alan Stock who said the economy has added fears to our sector, but we have never been stronger. “I’m not sure why the stock is depressed,” Alan Stock said.  “It’s probably due to fears about the economy hitting our business but I can tell you our business has never been stronger. In fact the month of June set a record.” Even with $4 gasoline people are still going to the movies. “Our business doesn’t seem to be affected by prices at the pump,” he tells the Fast Money traders. ”During the first half of this year movies have done amazingly well. And it's a good sign going forward when June does as well as it did” he added. What puzzles the Cinemark CEO is that despite a strong season for movies across the board, theater stocks aren’t performing well. 

Final Trades – Monday’s First Moves

  • Macke says go long McDonald’s (NYSE:MCD).
  • Adami picks Freeport McMoRan (NYSE:FCX).
  • Finerman likes Pride International (NYSE:PDE).
  • Najarian prefers Halliburton (HAL)

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