Halftime: Market Has Legs to Sustain Rally: Trader
In midday trading Tuesday, stocks pushed higher thanks to positive forecasts from both Walmart and Home Depot and a possible $39 billion deal in the fertilizer space.
And according to one "Fast Money" trader, the market has legs to substain the rally.
"I think the downside in equities is limitied because all the leverage is in the fixed income side," said Joe Terranova, chief market strategist at Vitrus Investment Partners, adding that he recommends being in the market for the long side.
Even with the postive outlook from Walmart, CNBC's Melissa Lee said there are reasons to be cautious about consumer stocks. On its conference call, Walmart executives said consumers are spending less. Credit cards accounted for just 15% of all transactions and food stamps are being used more frequently, the retail giant said.
Those data points were troubling, said Patty Edwards, principal at Storehouse Partners. But Walmart's call did give her confidence in what its management is doing. Plus, Home Depot "knocked it out of the park" with its earnings results while its competitor, Lowe's , struggled.
On the other hand, Edwards noted that shares of teen retailer Abercrombie & Fitch are down sharply. The New Albany, Ohio-based company had been a luxury retailer, she said, but the teens who were buying their clothes no longer have the money. As a result, ANF is having to sell their attire at discount. If investors want to explore retail stocks, Edwards recommends playing on the discount side of things.
Strength in International Side
It seems investors are embracing risk, where small caps are currently outpacing large cap names, said Lee. This indicates people want to be leveraged to the US economy opposed to the economies around the world.
It's still about the international scene, argued Steven Cortes, founder of Veracruz. China traded very well over the past two nights, where the US stocks did not. That includes both WMT and HD, he said, because price action is still very poor. He noted that shares of both companies continue to trade below the "Flash Crash" lows of May 6, even though the S&P is trading above those levels.
Edwards agreed that exposure to markets outside the US has been helping companies that are doing well. She said it's about the large cap on the international side.
There is still weakness in the US consumer, added Jared Levy, an options trader. He noted the gap between declining credit ratings and higher lending standards. Many consumers have little money, are often unemployed and don't seem to be buying homes, he said.
"I think the consumer has a long road ahead of them," said Levy. "I don't see big upside here for the consumer or the S&P for that matter."
BEST WAY TO PLAY EMERGING MARKETS?
After Potash , the world's largest fertilizer producer, rejected a $39 billion takeover bid from BHP Billiton , agriculture stocks surged on speculation that the industry is now the best way to play emerging markets.
With supply challenges around the world and a shortage of wheat creating increased demand for corn, "this is a perfect storm for the space," said Joe Terranova, chief market strategist at Vitrus Investment Partners. With Potash, he thinks the trade going forward points to above $150 a share.
Tim Seymour, founder of EmergingMoney.com said POT is an emerging market trade. Demand from emerging markets increases by 3-4% a year, he noted. He thinks Potash is a long-term story.
While it remains to be seen who will ultimately succeed at taking over the Saskatoon, Canada-based company, Seymour expects that "intergrated miners will swallow up the ag industry at some point." To play the trend, he recommends looking at Israel Chemicals .
In the options market, trader Jared Levy noted that people are anticipating a higher bid. In midday trading Tuesday, he saw some upside activity. In July 2012, 160 calls are down on a day when the stock is up by $30 a share, he said. That means cash deals are expected and there is limited upside, Levy surmised.
PRICE OF RIM'S TORCH SMARTPHONE SLASHED
Shares of BlackBerry maker Research In Motion continue to slide on fears of disappointing sales of the Torch, its new smartphone. Amazon is now selling the device for just $99, down from the original $199 price tag.
The problem with the Torch, said Patty Edwards, principal at Storehouse Partners, is that it doesn't have enough applications. She thinks RIMM should "blow out" its inventory and come out with "the next big thing."
RIMM's stock is trading $2.5 off of its 52-week low, said Joe Terranova, chief market strategist at Vitrus Investment Partners. That said, investors have a point of reference if they want to play it on the long side and he thinks it's not a bad idea. On the downside, he sees it at $45-50 and $60-65 on the upside.
TARGET REPORTS EARNINGS WEDNESDAY
Target outperformed shares of Walmart this year, but will that continue after the Minneapolis-based company reports earnings Wednesday morning?
Patty Edwards, principal at Storehouse Partners, is not "feeling the love" for Target as much as she'd like to. The retailer hasn't done everything she'd like to see, she said. TGT is selling more apparel, which means more high gross margin merchanside, she noted. But Edwards thinks Target will continue to outperform thanks to the higher income shopper it attracts.
CALL TO THE FLOOR: RESMED
Based in San Diego, Calif., ResMed is a health care company that manufactures products that assist those with sleep disordered breathing and other respiratory issues. CEO Kieran T. Gallahue appeared on Tuesday's Fast Money Halftime report to talk about the company's products and possible effects of health care reform.
With the new health reform laws, Gallahue expects that because more people will have health insurance, the volume of patients who get access to ResMed's products will increase. Those products help those who suffer from sleep apnea and while insurance companies around the world cover treatment for this disorder, it's not often covered in the US. He thinks that could change.
CNBC's Melissa Lee wondered if increased awareness of sleep apnea has helped sales of ResMed's products. Gallahue said a more informed public has helped the company to sell additional devices, citing 16% growth in the company's topline and 21% increase in its bottomline on an annual basis. Yet, it has only 15% penetration in the US and 5% penetration in countries around the world.
Watch the video to see the full interview with Gallahue.
What's the Trade?
Steven Cortes, founder of Veracruz, likes ResMed. By looking at its long-term chart, he thinks it is similar to McDonald's. RMD is a play on obsesity, he said and because that's a bull market, he recommends playing it long.
CALL THE CLOSE
"I don't like the action here," said Jared Levy, an options trader. "I'll stay long up until about 1160 in the S&P. I'd be a seller there."
Steve Cortes of Veracruz is long Mosaic , an agricultural chemicals company based in Plymouth, Minn.
Patty Edwards of Storehouse Partners recommends picking individual stocks.
Joe Terranova of Vitrus Investment Partners called Tuesday's market a "classic day of just keep buying the highs."
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Trader disclosures for Tuesday, Aug. 16, 2010.
Terranova owns (AKAM)
Terranova owns (V)
Terranova owns (NRG)
Terranova owns (POT)
Terranova owns (OXY)
Terranova owns (GLD)
Terranova owns (BAX)
Terranova owns (MOS)
Terranova owns (PFE)
Terranova owns (SU)
Terranova owns (XBI)
Terranova owns (GOOG)
Terranova owns (LRCX)
Terranova owns (AXP)
Terranova owns (C)
Terranova owns (GS)
Terranova owns (BMO)
Terranova owns (MSFT)
Terranova owns (QCOM)
Terranova owns (FCX)
Terranova owns (APA)
Terranova owns (GLD) Calls
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (DRYS)
Virtus Investment Partners own more than 1% of (EXR)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (XLK)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)
Cortes is long (FCX)
Cortes is long (MOS)
Cortes is long the S&P 500
Cortes is long Canadian Dollars
Cortes is short Japanese Yen
Cortes is short British Pound
Cortes is short Gold
Cortes is short (XLF)
Edwards owns (AMZN) for clients
Edwards owns (GOOG) for clients
Edwards owns (GLD) for clients
Edwards owns (WMT) for clients
Edwards owns (HD) for clients
Edwards owns (TGT) for clients
Edwards owns (VXX) for clients
Edwards owns (TTM) for clients
Edwards owns (F) for clients
Edwards owns (SYT) for clients