The four-day rally snapped Monday on some profit-taking in the financial stocks.
The Dow Jones Industrial Average fell 7.01, or 0.10%, to 7,216.97, while the S&P 500 lost 2.66, or 0.35%, to 753.89. The Nasdaq fell 27.48, or 1.92%, to 1,404.02. Despite the end of the rally, Guy Adami said on CNBC's "Fast Money" TV show he was encouraged by today's market action. "It wasn't great, but it wasn't horrible," he said. Adami said the rally got derailed when the report came out that the delinquency rates at American Express ( AXP) were getting progressively worse. Joe Terranova said a couple of days of consolidation is alright. What he doesn't want to see is the S&P falling below 740. Jeff Macke said he took some profits on Morgan Stanley ( MS) and Goldman Sachs ( GS), which rose dramatically during the rally. Zachary Karabell said it isn't necessary to feel bullish or optimistic to feel that the market has room to roam. Adami said Federal Express ( FDX) stands to benefit from Fed Chairman Ben Bernanke's comments over the weekend on "60 Minutes" that the recession probably will end this year, with the recovery beginning in 2010. Terranova said the Fed is going to be printing a lot of money, which will set up a reflation trade that will boost commodities and equities. Melissa Lee, the moderator of the show, noted that Alcoa ( AA) was down 11% in after-hours trading after it announced plans to cut its dividend to 3 cents from 17 cents to save $400 million.
Terranova said Alcoa is clearly struggling and challenged. He said the best place to play this space is in copper with Freeport McMoRan ( FCX). Crude oil gained $1.10 to $47.35 a barrel after OPEC decided over the weekend to hold production steady. Adami said oil is trading as if it wants to go north of $50. Karabell said oil is not about to fall because OPEC is more disciplined about its members' production than it was in the 1990s, when oil prices collapsed. In addition he said non-OPEC nations are less capable of increasing production and have underinvested in new supply. Terranova noted the compliance rate in the last OPEC cut was 79%. Lee shifted the discussion to the tech-heavy Nasdaq which fell 2% today. Terranova said investors should look at this period as an opportunity to get into Intel ( INTC) and Broadcom ( BRCM). But Macke was of the opposite opinion, saying it would be a good time to get out of Intel and Microsoft ( MSFT), which he called the "value trap of all time." The panelist briefly commented on Nouriel Roubini's assertion last week that the rally was nothing more than a "dead-cat bounce." Terranova said he was less concern about the remark and more concerned on what traders are doing. Karabell said experts like Roubini rarely do a good job of calling the recovery. Lee invited Bill Seidman, former FDIC chairman, to talk about the status of the financial industry one year after the collapse of Bears Stearns. Seidman said the recovery of the financial system is still a long way off. "The system is running on credit provided by the Treasury and that can't last," he said.
He told the panel the recovery will come when there are normal spreads, credit moving on a normal basis, economic growth and a decline in unemployment. Seidman didn't think much of the Fed's stress tests, saying the government is just buying time as it has been doing with American International Group ( AIG). In his estimation, AIG should have gone into bankruptcy and "everyone would have been better off." Is the bear market bounce over? Jeff DeGraaf, head of technical analysis research at ISI Group, doesn't think so. He said he's expecting one of the biggest bear market bounces that he's seen for some time. He said it could last until Memorial Day. He said one of the keys to the rally will be the percentage of issues above their 50-day moving averages. Historically, he said, when the number of issues reaching those levels hits 80%, it will be time to reset and prepare for a bear market. He also pointed out the current "cluster" of advance-decline ratios will take time to unwind. DeGraaaf liked the breath of the tech and healthcare stocks, which he said will turn out to be the "surprise" of 2009. Lee asked Jeffery Harte, director of research for Sandler O'Neill, which bank would be the first to raise private equity. Harte expects that a large bank offering might happen in the summer. He said the timing would depend on the reduction of government rhetoric over "villains" in the banking industry. He expects names like Goldman Sachs, JPMorgan Chase and Northern Trust ( NTRS) to step up with offerings. He said these will be the ones able to raise money and pay back TARP money.
He called Goldman Sachs and JPMorgan Chase the best places for investors to park their money. Moving on to the coal trade, Terranova said the significant pressure on coal in the past four to five months has opened the door for investments in natural gas producers like Apache ( APA) and EOG Resources ( EOG). With natural gas prices head to $4.50, it's cheaper for energy generators to switch from coal to natural gas. Still, Adami said he liked Joy Global ( JOYG) because 80% of its coal plants are outside of the U.S. Karabell said with the heavy regulatory hand of the Obama administration in the coal industry, a company like Joy Global will benefit in countries like India and China, which rely on coal heavily as a cheap source of energy. For the Rising Star segment, Adami picked Borgwarner ( BWA), which he expects will make a comeback. The company is the largest producer of automatic transmissions and fuel-efficient dual clutch technology. Despite a good showing by the retail sector last week, Macke said the only stock he likes is Wal-Mart ( WMT). Karabell said he liked Amazon.com ( AMZN) as one of the better consolidated retail companies. In the final trades, Macke was for Mosaic ( MOS), Adami for Transocean ( RIG), Karabell for Monsanto ( MON) in the high $70s, low$80s, and Terranova for Broadcom. "Check out "'Fast Money' Portfolios of the Week" on Stockpickr every Thursday.