Oil Gushes to Record, Stocks Plummet

GUSHING ABOVE $133

The headline: Oil Surges 3.3% to $133.17, Fourth Record in as Many Sessions, on Biggest Drop in U.S. Supplies in 4 Months

This was a “discouraging day,” Jeff Macke said. Oil’s intraday run coupled with the less-than-optimistic Fed minutes did a number on the markets. As for oil, you can’t argue anymore that this rip is completely based in supply and demand, Macke said. A lot of it is speculation. While the fundamentals are there for oil to go higher, there’s no fundamental reason why it should be this high. It’s become it's own bubble.

Stocks are in a correction, Guy Adami said, and it’s not the worst thing in the world because it provides opportunities to buy things that look promising – like tech – at lower prices.

In fact, Karen Finerman added to her Citigroup position during this sell off. Over time, Citi has got to go higher, she said.

And Pete Najarian used the explosive move in oil to buy the refiner Frontline on its congruent options volume. He also noted that the VIX volatility index spiked when oil made its late-day move, showing that fear is coming back into the market because of these high prices.

AMR: OIL = JOB CUTS

The headline: Airline Stocks Slammed Again and Again as Record Oil Makes Business Unsustainable; AMR Plunges 24%

The airlines are so heavily shorted and loathed that there gets to be a point when they become attractive, Guy Adami said. AMR hit a 52-week low on a huge volume day Wednesday, but at $6 it’s hard not to take a second look, he said.

Jeff Macke said that if you believe that oil is a bubble, then once the bubble is pricked you can assume that the airlines will shoot higher. While he’s by no means an airlines bull – in fact, quite the opposite – he said he’d rather be long airlines than short oil.

Pete Najarian’s calling AMR a buy. The stock was down because it made some tough decisions – cutting capacity, charging for carryon bags – but decisions he thinks will ultimately make it more profitable.

DISCOUNTS WON’T MATTER

The headline: BJ’s Wholesale Shares Tumble Despite Better-Than-Expected Profit, Higher Outlook

Retail’s not quite down to where Karen Finerman feels comfortable buying it yet. Jeff Macke also doesn’t expect anything great from the consumer space, although he remains bullish on Wal-Mart for its ability to “get in front” of the oil problem instead of just complaining about it.

Guy Adami recommended Costco as a trade ahead of earnings if it goes down to $67.50.

MICROSOFT’S PAYING CUSTOMERS

The headline: New Microsoft Service Will Give Customers Cash Back on Purchases Made Through Its Search Engine; CEO Steve Ballmer Says Microsoft Will Not Attempt “Whole Acquisition” of Yahoo

Nothing but a desperate measure, said Jeff Macke. The “buying eyeballs” strategy is straight out of the 1990s.

FUN IN THE SUN

The headline: Solarfun Surges After Smashing Quarterly Profit, Sales Estimates

If you own Solarfun, Pete Najarian emphatically recommends taking profits. It’s had one hell of a run, he said, but it can’t last forever.

WHEN HEDGES GO BAD

The headline: Financials Add to Selloff on Concern Hedges Against Credit Crisis Backfired

Ladenburg’s Dick Bove said the hedge issue as it relates to the big brokers and some of the big money-center banks is a cause for concern for the current quarter at least.

A lot of these hedges, such as shorts on financial indexes, have blown up, Bove said, and that could lead to billions in loses for the big brokers. He predicted Lehman Bros. , Morgan Stanley , Merrill Lynch and Goldman Sachs each drop anywhere from 15 to 20% by August before recouping the damages. His advice? Avoid these stocks like the plague over the next few months.

While banks like Citi and JPMorgan have less to worry about with their hedges, Bove said, they are still likely to have disappointing quarters. That being said, he believes Citi is in a “strong position” to turn around its core business. While not out of the woods by any means, he thinks the bank could double over the next couple of years.