'Fast Money' Recap: Bank Bulls Back

Mike Taylor

The U.S. stock market rallied Tuesday on bullish earnings from Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) and Lehman Brothers (LEH Quote - Cramer on LEH - Stock Picks) and a 75-basis-point rate cut from the Federal Reserve. The S&P 500 jumped 4.2%, the Dow rose 3.5%, and the Nasdaq climbed 4.2%.

On CNBC's "Fast Money" TV show, Pete Najarian said steel, coal, and rails all moved. He pointed out that, as in August and January, spikes in the volatility index accompanied today's big rally. He said he likes U.S. stocks at these levels, but after a 750-point rally, he'd be careful.

Jeff Macke broke down the Federal Reserve's action today. He said that the Fed believes growth is getting worse and inflation is accelerating but will moderate. Macke says the central bank will do whatever it takes to prevent a seizure in the credit markets.

Tim Seymour said that stocks responded today. The dollar rallied and Treasury bonds sold off, which were two things that had to happen if the market was going to bottom, he said. He said that the Goldman Sachs and Lehman Brothers earnings were important, and suggested that the Fed meeting looked like an afterthought to what was already taking place in the stock market.

Jeff Macke said that the Fed action over the weekend to orchestrate a buyout of Bear Stearns (BSC Quote - Cramer on BSC - Stock Picks) by JPMorgan Chase (JPM Quote - Cramer on JPM - Stock Picks) was a very bullish signals to investors.

Guy Adami said that investors will no longer make easy money on the short side. He said it's now time to revise strategy and buy on dips, probably for the rest of the year. Liquidity is no longer a problem, and he likes Merrill Lynch (MER Quote - Cramer on MER - Stock Picks) at these levels. He believes Goldman now trades with a $190 handle.

Seymour said that during Goldman's earnings, the bank indicated that the worst of the market turmoil is over. He said Goldman predicted that the U.S. could be out of recession by the end of 2008 and will see growth by the end of 2009.

Macke said that in a perfect world he would declare victory and take gains off today's large rally. He said he's a dip-buyer in this environment. He reminded viewers that "Fast Money" is a trading show, and that for tomorrow, he would buy financial stocks, but that outlook will likely change soon.

Adami said he was a buyer of the financials here. Seymour said that the group doesn't trade at an asset class, noting that Bear and UBS (UBS Quote - Cramer on UBS - Stock Picks) are very different stories. He said more companies will fall. Najarian said that in the short term he would not buy the banks because they rallied too much today.

On the impending initial public offering by Visa, Adami cautioned viewers against buying the stock on the open. Wait and see how it trades, he said. He still sees some upside in MasterCard (MA Quote - Cramer on MA - Stock Picks), but there's no reason to race in to Visa, he said. Macke reminded investors that Visa is a mature company. "This isn't the Netscape IPO," he warned.

Morgan Stanley (MS Quote - Cramer on MS - Stock Picks) reports earnings tomorrow. Adami said that the company issued huge writedowns, and could be due for an upside surprise. He noted that Goldman put the bank on its conviction buy list, and predicted 15% to 20% upside.

Najarian predicted 10% upside for Morgan Stanley. He advised viewers to sell into gains if they get them tomorrow. Seymour said that Morgan Stanley benefits from the Bear Stearns sale. The bank has the No. 1 prime brokerage, and should get some of Bear's former customers. He said this will be big for earnings going forward.

Bear Stearns shares doubled today and then pulled back on speculation about lawsuits for JPMorgan and that Bear shareholders may not approve the take-under. Adami said that short-sellers were covering, but said that if the deal gets tangled in litigation, by the end of the process Bear's book of collateralized debt obligations might actually be worth something.

Macke said the Bear acquisition was not tightly structured and was rushed. If litigation continues for a year or two, that would provide upside surprise for shares of Bear. Adami said that for a "lottery ticket," viewers might try to buy Bear shares.

Najarian noted heavy option activity in Bed Bath & Beyond (BBBY Quote - Cramer on BBBY - Stock Picks). He noticed a great deal of put activity.

The iShares FTSE/Xinhua Index (FXI Quote - Cramer on FXI - Stock Picks) has been pulling back off its high. Tim Seymour said that rhetoric about China's inflation and political situation have brought the stock down. He thinks China is actually interesting at these levels. He also recommended China Mobile (CHL Quote - Cramer on CHL - Stock Picks) as a play on the Chinese consumer.

On the vast reduction in the fed funds rate, which provides a great deal of liquidity for U.S. markets, Adami said investors should look at the best in breed for banks. He suggested US Bancorp (USB Quote - Cramer on USB - Stock Picks) because it has no subprime exposure and has traded at the same level throughout the credit crisis. Najarian agreed.

Seymour said that Fannie Mae (FNM Quote - Cramer on FNM - Stock Picks), Freddie Mac (FRE Quote - Cramer on FRE - Stock Picks) and Sallie Mae (SLM Quote - Cramer on SLM - Stock Picks) are likely to grow from here. He also said to look into regional banks.

Macke said that in the short run the entire market has a bullish outlook. For the longer term, however, he believes that "the sun is going to blow up and we're all going to die." In the meantime, though, he sees a "heck of a long trade." He recommended Wal-Mart (WMT Quote - Cramer on WMT - Stock Picks).

Nike (NKE Quote - Cramer on NKE - Stock Picks) reports earnings this week and is poised as a major player for the Beijing Olympics this summer. Macke recommended buying and holding. He said the stock is a must-own.

Seymour cautioned viewers that manufacturing inflation in China is beginning to become a problem, but that Nike's margins still look good. Adami suggested carefully examining the earnings statement and finding out how much stock the company has bought back. Najarian called Nike best in breed in footwear and clothing and said good sales from Dick's Sporting Goods (DKS Quote - Cramer on DKS - Stock Picks) was a bullish sign.

The traders welcomed Dominic Frederico, CEO of Assured Guaranty (AGO Quote - Cramer on AGO - Stock Picks). The bond insurer stands to benefit greatly from increased liquidity in the market and growing market share as sector rivals MBIA (MBI Quote - Cramer on MBI - Stock Picks) and Ambac (ABK Quote - Cramer on ABK - Stock Picks) struggle with their exposure to collateralized debt obligations.

Najarian said he would buy the stock. Seymour agreed, as did Adami and Macke, although they were slightly more cautious.

Trader Radar

GameStop (GSE Quote - Cramer on GSE - Stock Picks) traded at unusual trading volume today.

Dan Fitzpatrick of RealMoney.com joined the traders to discuss technical analysis of the markets. He said the market is in a downtrend but has gotten ahead of itself to the downside. He noted spikes in the volatility index, which he said are barometers of the emotional state of the market.

Spikes and pullbacks in the index correlate with big upside, he said. He also noted that the S&P 500 is well below its moving average, meaning it will likely come back. He said he likes Google (GOOG Quote - Cramer on GOOG - Stock Picks) in this environment.

Fast Messages

A viewer asked Adami how he felt about the steel sector after the Fed rate cut. Adami replied that the important thing was that steel names have pricing power and are cheap on a valuation basis. They're still going higher, he said.

A second viewer asked Najarian how he felt about call activity in Deere (DE Quote - Cramer on DE - Stock Picks). Najarian said he liked the trade especially after bullish news from Caterpillar (CAT Quote - Cramer on CAT - Stock Picks).

During the show, Visa closed the pricing of its IPO at $44, above the expected range, which only happens when there's substantial demand, the traders said. Macke said that JPMorgan Chase will benefit from IPO, and said that it's been a great week for CEO Jamie Dimon. Najarian said he loves Visa.

He also predicted that investors will sell out of MasterCard and buy Visa. Seymour said the offering was a bellwether for other deals and is a bullish sign for the market. Macke called the IPO an "nice one-off," pointing out that there aren't a lot of Visas in the pipeline. Najarian and Adami both cautioned against chasing the stock.

Final Trade

Macke said to get out of gold. Adami chose Oracle (ORCL Quote - Cramer on ORCL - Stock Picks). Seymour said to get short the CurrencyShares Euro Trust (FXE Quote - Cramer on FXE - Stock Picks). Najarian selected Tesoro (TSO Quote - Cramer on TSO - Stock Picks).

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