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By Friday, Earnings Could Ignite a Surprise Bull Rally: Terranova

Monday, 9 Jul 2012 | 1:53 PM ET

Are you among the skeptics who finds little reason to feel bullish ahead of earnings season? Trader Joe Terranova thinks you just might be surprised.

He’s focused on JPMorgan earnings which are scheduled to be released on Friday morning.

Terranova believes that if JPMorgan says the right things - it could ignite a rally. Here's why:

If the loss from the London whale comes in around Jamie Dimon’s estimates (and not those of the NY Times which were much higher), he thinks the Street will take results to mean Dimon is in full control of the situation.

And if Dimon is in full control at JPM, he thinks the Street will start to look at profit potential of banks broadly, believing the sector was oversold and that the worst is priced in.


Taking the thesis a step further, Terranova believes the market is well positioned for a broad rally, merely because the S&P has remained relatively resilient in the face of serious headwinds.

And he thinks financials could ignite that broad rally, because the Street would take an advance in banks as a sign the sector could resume leadership and drive the entire market higher.

Got that? That's Terranova's thesis.

Of course not everyone is as optimistic as Terranova. Adam Parker chief US Equity analyst for Morgan Stanley certainly isn’t.

FMHR Preview on Earnings, Obama
The FMHR crew offers a quick glimpse of earnings and President Barack Obama's remarks on taxes. CNBC's Eamon Javers also offers reaction.

He believes macro headwinds are too strong for banks or most other sectors to rally in any meaningful way.

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Parker cites lower oil prices, lower yield on the 10-year and a strong dollar as powerful bearish catalysts for stocks.

In fact, Parker believes that by year end the S&P trades 1167 in part due to his belief the earnings multiple will contract. “I see weakness,” he admits.

“The fiscal cliff, the European sovereign crisis and a hard landing in China will weight on the market. I think second half estimates are too high.”

What do you think? We want to know!

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Posted by CNBC's Lee Brodie

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Trader disclosure: On July 9, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Joe Terranova is long VRTS; Joe Terranova is long MCD; Joe Terranova is long PNC; Joe Terranova is long USB; Joe Terranova is long TCBI; Joe Terranova is long SBUX; Joe Terranova is long MNST; Joe Terranova is long NKE; Joe Terranova is long UPL; Joe Terranova is long NXPI; Joe Terranova is long LPX; Joe Terranova is long WFM; Joe Terranova is long APPL; Joe Terranova is long EMC; Stephanie Link is long JPM; Stephanie Link is long DD; Simon Baker is funds long ABT; Simon Baker is funds long GE; Simon Baker is funds long HD; Simon Baker is funds long MSFT; Simon Baker is funds long NKE; Simon Baker is funds long PEP; Simon Baker is funds long CRM; Simon Baker is funds long SLB; Simon Baker is funds long XHB; Simon Baker is funds long STI; Simon Baker is funds long V; Simon Baker is funds long DIS; Simon Baker is funds long WFC

For Adam Parker
Morgan Stanley is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

For Nicole Miller Regan
The following companies have been investment banking clients of Piper Jaffray during the past 12 months: BBRG
The following companies have been investment banking clients of Piper Jaffray during the past 12 months: GMCR
The following companies have been investment banking clients of Piper Jaffray during the past 12 months: IRG
Piper Jaffray expects to have the following companies as investment banking clients within the next three months: BAGL
Piper Jaffray expects to have the following companies as investment banking clients within the next three months: IRG
Piper Jaffray received non-investment banking securities-related compensation from the following companies during the past 12 months: SONC

For Brian Yu
A director of Citi serves on the board of AA
Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of AA
The Firm is a market maker in the publicly traded equity securities of AA
The Firm is a market maker in the publicly traded equity securities of BTU
Citigroup Global Markets Inc. or an affiliate received compensation in the past 12 months from ANR
Citigroup Global Markets Inc. or an affiliate received compensation in the past 12 months from AA
Citigroup Global Markets Inc. or an affiliate received compensation in the past 12 months from ACI
Citigroup Global Markets Inc. or an affiliate received compensation in the past 12 months from PCX

For Ken Usdin
As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment.

For Jeff Kilburg
Nothing to disclose


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