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Better keep your wits about you, it looks like we’re entering bear territory. Once again record oil prices pushed the Dow Jones Industrial Average [.DJIA Loading... ()
] lower Friday. This prolonged period of falling stock prices has left us on the brink of a bear market. (By definition, to be in a bear market the index needs to end the session at least 20 percent below its closing peak, reached in October.)-------------------------------------
HOW TO BATTLE THE BEAR?
Bear market or no, there’s always a trade to be had. Jon and Pete Najarian put together some suggestions.
Coal stocks just keep working, says Pete Najarian. Options investors are buying calls in Walter Industry[WLT
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] and Massey [MEE
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] years out. I like that activity.
And keep an eye on Alpha Natural [ANR
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], adds brother Jon. Also Peabody[BTU
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] could have upside.
I just can’t get behind coal because of valuations. I understand the story but the valuations are very high, says Karen Finerman. If I were to take on that trade, I’d also put on puts.
If you look at the underlying commodities then look at the prices of those stocks that mine those commodities, they are not that expensive, counters Pete Najarian.
For other ways in which Jon Najarian recommends playing the bear market please watch the video.
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OIL SURGES ABOVE $142
Oil prices [US@CL.1
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] rose to a record near $143 a barrel on Friday as a drop in global equities markets sent fresh investors into commodities. U.S. crude settled 57 cents higher at $140.21 a barrel, after profit taking sent prices from the record $142.99 hit earlier.
I think one of the problems is the number of traders on the floor. Oil is gyrating because there are so few of them these days, says Joe Terranova.
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NEXT SUBPRIME SHOE TO DROP?
Citigroup [C
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] and Barclays [BCS
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]are both down 40% year to date, while HSBC [HBC
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] (Europe’s biggest bank) is only off 6%. Seems positive except Pete Najarian now sees bearish activity in HSBC options.
I think it’s aggressive speculation, Najarian explains, that HSBC could fall apart. I’m just wonder what’s coming. I speculate that there could be writedowns ahead.
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WALL STREET IN CRISIS
Merrill Lynch [MER
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] is likely to take a new round of writedowns of between $3 billion and $5 billion, and post a possible loss, according to CNBC’s Charlie Gasparino.
The expected writedowns are likely to heighten the pressure on Merrill Lynch CEO John Thain and could threaten his credibility. If Merrill needs to raise cash, Thain has only a few options in front of him, which include buying or merging with a bank, selling Merrill's stake in Bloomberg or BlackRock, or selling stock to raise capital.
Merrill cannot easily issue more common equity because investors who gave money to Merrill in December and January must receive substantial extra compensation if Merrill raises additional capital at too low a price.
In financials, I wouldn’t t buy Lehman [LEH
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] now, says Guy Adami. Wait for a big volume day.
And keep an eye on Regions [RF
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], adds Pete Najarian. I think they’re going to have to cut their dividend.
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DOLLAR BACK TO DIVING...GOLD SURGES
Gold rallied to its strongest level in a month on Friday as record oil prices, a weak dollar and tumbling world stocks boosted the metal's safe-haven appeal.
The big moment for me will be Thursday when we see the ECB move, explains Joe Terranova. Until then I remain with my currency trade. I bought dollar index futures toward the end of the day Thursday. I expect the government will come in and support the dollar. Look at the PowerShares DB US Dollar Index Bullish [UUP
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] if you want to play the dollar from the long side.
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SPUTTERING MOTORS
Goldman cut General Motors [GM
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] to a sell rating and warned it would have to raise capital, Thursday. As a result the auto maker’s stock dropped to its lowest level since 1955. Also Ford dropped after Goldman cut its price target from $8 to $5.
I think within the next 3-5 days there will be a catalyst to get long GM, says Guy Adami. I can’t tell you what it is, but I really think it’s coming.
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TOPPING THE TAPE: HIDE OUT IN HEALTH CARE?
Investors are wondering if they can hideout in healthcare. Maybe. There's speculation that drugmaker Bristol-Myers Squibb [BMY
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] could be an acquisition target as the industry gets closer to losing exclusivity on several leading drugs, said a Sanford C. Bernstein analyst, who upgraded the stock to "outperform" from "market-perform."
In the space, I think Merck [MRK
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] and the Pharmaceuticals HLDRS [PPH
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] look particularly cheap, says Karen Finerman. Is this the bottom I don’t know, but it’s got my attention.
I like Merck too, adds Pete Najarian.
And keep an eye on Celgene [CELG
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], adds Guy Adami. At 27 times forward earnings it’s rich but I think it’s a buy.
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CORN CLIMBS TO A RECORD
U.S. corn futures hit record highs on Friday, propelled by excessive rains in the Midwest which are threatening to cut crop production amid robust global demand and surging crude oil prices.
I’d play it through Monstanto [MON
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], says, Joe Terranova.
Agrium [AGU
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] and Potash [POT
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] are my picks, adds Guy Adami, becuase they have pricing power.
Keep an eye on Bunge [BG
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], exclaims Pete Najarian.
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BREAKING NEWS: MBIA
Later in the show Dylan Ratigan reveals that bond insurer MBIA [MBI
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] is selling a half a billion dollars in municipal bonds to raise cash.
Earlier in the month Moody's lowered its financial strength rating on MBIA by five notches.
Love that after the bell announcements on Friday, Guy Adami says with a sly smile.
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