'Fast Money' Recap: Bearish Outlook

NEW YORK ( TheStreet) -- The markets closed the week on a four-day winning streak.

The Dow Jones Industrial Average rose 58.73, or 0.58%, to 10,197.72, while the S&P 500 added 7.68, or 0.72%, to 1,077.93. The Nasdaq added 21.05, or 0.97%, to 2,196.45.

Melissa Lee, the moderator of CNBC's "Fast Money" TV show, said that the Dow jumped 500 points this week in the biggest move in a year.

Guy Adami said the rally was much needed but emphasized he was still on the sell side. He said the market is going to head down and sail through the 1,040 level on the S&P.

Steve Grasso concurred, saying reality is going to set in as the market heads lower. "The short side is the smarter money."

For a breakout of some stocks from a recent "Fast Money" TV show, check out Dan Fitzpatrick's "3 Stocks I Saw on TV."

3 Stocks I Saw on TV

Joe Terranova disagreed, saying the momentum clearly shifted this week and "risk is back on." He said the Treasury had good news on China and oil and copper moved up accordingly. He said investor confidence has returned, adding a double-dip is "not in the cards."

Mike Khouw was bearish, saying the rally was long overdue and noted volume was on the light side.

Lee noted that both copper and oil rallied today. Terranova said investors in this space are engaged in mean reversion trades, focusing on laggards that have been ignored. He said the ag trade is one such trade, with stocks up 10% to 15% across the board.

Adami said Freeport McMoRan ( FCX) looks as if it's heading lower according to its technicals.

As for oil, several panelists thought Anadarko Petroleum ( APC) was the better trade than BP ( BP) as both stocks moved up today.

Grasso said he liked Occidental ( OXY) and Exxon Mobil ( XOM) in that space.

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With the earnings season set to kick off next week, Khouw noted that implied volatility of stocks such as Alcoa ( AA), JPMorgan Chase ( JPM) and CSX ( CSX) have been higher than their averages.

Khouw said Alcoa shares usually don't move much on earnings and may move down this time around. He said he liked the rail sector better, especially CSX.

Patty Edwards said a lot of earnings estimates have been adjusted higher in the past couple of months. In this regard, she sees Bank of America ( BAC) doing well. That's not the case with Intel ( INTC) and Yum Brands ( YUM), which have seen adjustments to the upside, she said.

Adami said he also liked the rails, adding he would go with Kansas City Southern ( KSU).

Looking at the financials that will be reporting earnings next week, Terranova said Bank of America might show a upside earnings surprise. Adami, however, was leery of the financials because of bearish reports earlier this week from several analysts, including noted bank analyst Meredith Whitney.

In the "Analyze This" segment, Michael Block, an investment strategist with Phoenix Partners Group, said it was important to watch the response of analysts to next week's earnings.

He said stocks such as Goldman Sachs ( LNC) and JPMorgan Chase ( LNC) stand a good chance of an upside surprise because of lower expectations going into earnings. On the other hand, he was wary of Lincoln ( LNC) and Hartford ( HIG) because the burden of higher expectations.

In the "Call of the Day," Neil Currie, an analyst with UBS, upgraded Costco ( COST) to a buy from neutral. He called Costco the best retail story in the world for the long term. Edwards also had high praise for Costco, calling it the best in its class.

In the final trades, Edwards liked Corning ( GLW). Terranova liked CVS ( CVS). Adami liked MSG ( MSG). Khouw said to hedge the market, while Grasso liked Altria ( MO).

-- Written by David Tong in San Francisco

To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.

"Check out "'Fast Money' Portfolios of the Week" on Stockpickr every Thursday.

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