Market’s Major Reversal and Trading or Fading Next Week’s Earnings 7/14/23

0:01Thanks, John. Right now on Fast. Easy come, easy go. Bank stocks come out of the gate hot as Q2 earnings kick off. But those early gains reversed in a hurry and the rest of the market went along for the ride. What this Friday fade says about the strength of stocks from here. Plus, there was one part of the market that was able to keep its head above water today. Healthcare riding high after what's been a rough month. The chart master here to tell us why he thinks there is more room to run. And later it's Friday, so you know what that means. We've got a chart of the week. The stock looking at its best five-day run in over three years.

0:33We'll tell you what it is in 30 minutes or less. I'm Sarah Eisen. In tonight for Melissa Lee, this is Fast Money live from the NASDAQ Market site. On the desk with me tonight, Bono and Eisen, Courtney Garcia, Steve Grasso, and Guy Adami. Welcome to all of you. We're going to start with that roller coaster ride for bank stocks. JP Morgan, Citigroup, Wells Fargo, all popping at the start of trade after each posted revenue and earnings beats for the second quarter, but then the gains didn't last long. JPM managed to close in the green, but still ended the day well off its highs. Look at Wells Fargo dropping into negative territory.

1:05Citi falling 4 % turns out for its worst day since March. The reversal felt across the broader market, while the Dow managed to eke out a fifth straight day of gains. The S &P and the Nasdaq both closed in the red. Still, overall, very solid week for stocks. All the major averages posting strong gains since Monday. The Nasdaq up more than 3%. So what message does all this action send as we head into the start of earnings season? Guy, what did you make of the reversal? What happened? Hi, Sarah. It's great to see you. I'm sorry I'm not there. I think it's interesting. Listen, I don't want to make a huge deal out of one day.

1:40I'll say this. Last Friday, you saw a similar reversal in the market. The Fridays leading up to that, the market was sort of on cruise control every Friday. It would just levitate. Yes, last Friday it changed, and today it was interesting. I think a couple things stick out to me. You mentioned JP Morgan. The reversal in the KRE today, I think, is something to watch for sure. That touched up to the early June highs and seemingly failed around 44.5, 45. So that's something to watch. And the move in State Street, it's interesting, the prior guest with John was just talking about that. That is a huge move in a very important bank.

2:12And I think they may have told the real story of what's going on there. Things are tightening. Regulation is coming. Credit's going to be more expensive. And I think banks' ability to earn is going to be basically impaired for quite some time. So you have to ask yourself, what's the right valuation in this environment? I understand why J.P. Morgan gets a premium. But the other banks, I think, are going to start to suffer. But, Courtney, wasn't it good news when it comes to the economic signals from the banks, the deposit information? What did you glean? Yeah, and that's where I really like to see what J.P.

2:44Morgan has to say, because they have a really good grasp on the consumer. And they came out and talked about how good the consumer balance sheet looks, how they're continuing to spend maybe a little slower than they were previously. But even they're putting a lot of money on their credit cards right now, which some people look as a bad thing because you're seeing additional credit card debt.

3:03is that consumers are really optimistic on how the economy looks in the future and that they can continue to have wages as they go forward. You can't forget that consumer spending is about 70 % of GDP. And so if the consumer remains in a good position, it's more and more likely that this recession that everybody's been calling for may not happen here in the near future. I agree. That consumer confidence, University of Michigan out today, a lot stronger than expected. And when your inflation expectations crept up a little bit, something to watch with all the celebration over lower inflation. And Bono, are you changing anything that you're doing here?

3:34Not really. I mean, honestly, I mean, again, I can't really argue with what Courtney says. But honestly, what I want to really refuse to do is to kind of get sucked into this lull. It feels like, yes, the banking news was on the margin pretty positive. But I would argue that the banking stocks haven't really been what's taken this market higher anyway. So while I am going to look into the health of the consumer there, credit card balances, but also the fact that they were putting aside a little bit more money for loan loss provisioning. So while it wasn't anything alarming, the fact that we didn't kind of drive higher, to me, as Carter says, was somewhat of a pair of twos.

4:12I think the market clearly economically is strong. I think the consumer is still strong. But I'm not really seeing that catalyst that takes us to that leg further. And then you mix in a VIX around 13, 13.5. To me, it just says a lot of hesitancy to spin premium on protection. If you look at year-to-date gains on the major indices, to me it says it makes a lot of sense to take some of those gains, invest that in protecting your portfolio, selling in May and going away and doing so under pretty good feelings about it. Yeah, I mean, do you agree with that strategy, Steve, or is the pain trade still higher?

4:44Yeah, so I think it makes sense to actually pick up where Bono and just left off. The problem for the bulls and the problem for the bears is that the bears are wondering, should they jump in when the market's up this much? The bulls are thinking, do I sell this market or do I keep riding it? So we're both asking the same questions of when do you pull the switch or flip the switch? When you look at J.P. Morgan, when you look at Wells, when you look at Citi, those are different stories. So when you look at Citi's net income, it's$2.9 versus$4.5 billion, year ago quarter. That's not good. These weren't good quality.

5:21State Street, where a guy brought up, it's not good quality stuff, and they're shining a light on a lot of different things that people aren't focused on. When you look at the Better Bank, J.P. Morgan has a hotline to the Treasury. Janet Yellen doesn't make a move unless she talks to Jamie Dimon. That's probably closer to a fact than all of us would like to admit. Or actually, I would like to admit that because I want that. I want Jamie Dimon deciding policy. I think it's wishful thinking. Maybe it's wishful thinking, but when you think about it, when these regional banks were having trouble, Janet Yellen was calling Jamie Dimon.

5:58Jamie Dimon was on the phone. Somebody could at me on this and correct me, but I truly believe that Jamie Dimon was not orchestrating policy, not dictating policy. Does that have anything to do with Jamie Morgan's performance? Yeah, because I think that he gleans a lot of insight into where the puck is going and where to be putting his bets. You know what else happened today, Guy? We had seen these yields, which were lower all week and helping fuel the rally on treasuries, reverse higher. Partly we got that strong data. The dollar, which had been very weak and 15-month lows, reversing higher a little bit.

6:34Does that tell you anything or you don't want to read too much into today? No, I do want to read a little bit. First of all, the dollar obviously is a story you mentioned all the time. You're doing a wonderful job with that always. The dollar bounced, clearly. But the move in bond yields, and we've talked about this for seemingly the last couple of years, it's unhealthy, and we can debate whether or not that's a good word to use. But the United States bond market, two years, 10 years, any duration you want to talk about, should not move the way they've moved over the last week or so, and quite frankly, over the last couple of years.

7:05So when you see the 2's 10's go from 105 inversion down to 80, back to 95 over the course of a week, week and a half, that's telling you that the bond market really doesn't know what's going on. The equity market seems to be abundantly clear to what's going on. But every time we've seen volatility of this magnitude in the bond market, at a certain point, it finds its way into the equity market. And I think it's just a matter of time before we see that. Why do you say it doesn't make sense? So we got as high as, I think, 408 on the 10-year yield last week. And that was on that strong ADP report.

7:35And then jobs came in OK. And then this week, it was all about weaker inflation number. And so the instinct was buy bonds because the Fed is one and done. July rate hike, and that's it. Fair. You make a great point. This is the largest economy in the history of mankind. Almost by definition, the bonds, U.S. bonds, treasuries should be the most liquid asset on the planet. And they're trading, quite frankly, like$150 million biotech stock with one drug in the pipeline. You know, I don't personally, I don't think they should move like this. Now, maybe the world has changed. But there was a time when if you got a few basis points moved over the course of a week, you were doing back handsprings.

8:13Now you see that over the course of minutes. I think, again, market structure to me in the bond market is broken. I think it's a matter of time before it finds its way into the equity market. All right. That's a warning from Guy Adami. Let's turn to health care because it was the best performing S &P sector today. Names like UnitedHealthcare really drove that rally. Elevance also, Cigna, Eli Lilly, Centene, all helping the group. The chart master once called UnitedHealthcare, that chart, godlike. But now he says the power may be gone. Let's bring in Carter Worth of Worth Charting to explain. Nice reaction to the quarter, Carter.

8:49It was. It's sort of, let's say, a stick save in an otherwise sloppy pattern. I mean, in terms of the all data chart, we won't get to the charts quite yet. Unite Healthcare is one of the best performing publicly traded equities since its IPO back in 1984. On a split adjusted basis, that was 18 cents. We've got a stock trading here at 480 on a highs of 550. Best performing healthcare stock of all time with the exception of Amgen. The question is, is the uptrend intact or is it sort of over, over in the sense of a pause, a refresh and ultimately goes higher or a rolling over? Let's look at the chart.

9:25And we just have one. And what we have here is this great ascent, of course, and I'm only going back to 2018 on this particular iteration, and then this sideways grinding. To be fair, the peak to trough decline is 19 percent. Of course, the Nasdaq dropped 37 percent in this general two-year period. And so on that sense, not so bad. But it has stalled. And so long term, I would call it the pause that refreshes in an ongoing godlike stock. But today's action just simply saves what has otherwise been a very sloppy circumstance. I think more importantly than this particular stock, of course, is the opportunity in health care overall.

10:05What we're going to look at now is three identical charts. The first, second and third. First has no iterations, no drawings, no judgments, no lines. It is a relative strength chart. all data, the S &P 500 healthcare sector performance to the S &P. Look at the next. Well, what do we have? Talk about a well-defined trend line. And finally, third, what do we have? Where has this stopped? To the penny, to the penny, to the penny. Meaning the relative underperformance of healthcare right now is down to its all data trend line. In effect, since 1989 when the GIX standard classifications begin, and it has bounced every other time.

10:48In a market like this, where many things are frothy, something defensive like this that has underperformed, I think is a real opportunity. Very dramatic. Carter, thank you. That was great. Carter Worth, we're going to see you shortly on options action. What do you think of the charts, Steve? UnitedHealth is my you and my just trade. So I've always been betting on this stock. The The problem is it's been disappointing, as Carter has mentioned. But I loved how he said, to the penny. I know. He should narrate audio books. I mean, I felt like I wanted to see what happens in the next chapter on that one.

11:23I'm always rooting for UNH. It's been constantly disappointing. So I think it's day is coming. It just hasn't happened just yet. Quite a move today, Courtney, adding 200 points by itself to the Dow. Do you stick with this one? Healthcare in general, it's been defensive and has lagged. It has. And I actually I remain optimistic, just like Steve here on this. But I think a lot of this has come into the fact that elective surgeries are really increasing right now. And so there's going to be additional costs, which is going to affect them in the short term. But this is really a company. They have increased their revenue, I think, 11 consecutive quarters.

11:55And I think it's something you don't want to discount them over the long run. So, yes, maybe we have some pain still in the short term. But long term, I think it's a great trade. I was also listening to the to the penny, to the penny, to the penny. There's something else that he said, which is beta. And this is why I actually do still like this health care trade. The fact that Carter's already pointed out the trend line, it's starting to bounce off of that. But the fact that it's an opportunity for you to step down your beta in your portfolio at a time when we're all sitting here saying, bulls or bears, what is the next shoe to drop?

12:23I think this allows you to have a bit more smoothness to that portfolio and an increased margin of safety. On a related note, Guy, how about Eli Lilly adding another 3.5 % today? I mean, it's been on quite a run. All the obesity drugs, really. Yeah, it's remarkable. And this is the name, again, we've been talking about this seemingly for years, and people have knocked it on valuation. Maybe rightly so, but quite frankly, if you've tried to sell it on valuation, it's been a difficult thing to do. And I understand that it's expensive, but every sell-off of the stock of the magnitude we've just seen over the last week and a half has been bought.

12:56And I don't see any reason why that's going to stop. So despite valuation and despite some of the probably too much optimism, I still think Eli Lilly goes higher from here. All right. Healthcare on top of the market today, along with staples and discretionary. When we come back, we've only just begun the stream of Q2 earnings reports with Tesla, Netflix, D.R. Horton and more on the calendar for next week. Our traders are laying out how to play the latest results. That's next. And then later on options action, we're diving into the dollars drop this week. greenback hitting its lowest level in over a year during this session.

13:31What that move means and how you can trade around it. More Fast Money coming up in two minutes.

13:41Welcome back to Fast Money. Five Dow components and more than 50 S &P 500 companies report quarterly numbers next week. And it's not just the banks. We're also going to get results from big tech and pharma companies as well. So we are zeroing in here on some of the biggest names in a trade it or fade it earnings edition, starting with, of course, Tesla surging 128 percent this week, this year so far, Guy. Trade it or fade it? Yeah, Steve's going to be the other side of this, and he's been spot on. So it's going to be difficult to beat him on this one. But I'll say into earnings, the fact that this 280 level represents effectively a 50 percent retracement of that all time high we saw in the fall of 21 and the recent low we saw in January of this year.

14:22I think it's a place to sort of pause into earnings. I would fade it, Sarah. Steve, you've got to take the other side, right? Yeah. So, well, I don't have to, but Tesla would definitely trade this one. After that setup he gave you? He gave you so much credit. Yeah. No, that's OK. So, and I'm grateful for it. Guy always points out when people have done well with their calls. This one, though, is really extended because I started buying this at 105, traded at 190. Then got back into it. So this one has been all over the map. And I could totally understand why Guy wants to fade it at this point because it's had such a big run.

14:57But the world is entering into their charging standard. So I think they're going to be able to monetize that going forward. You might see a stutter step on this one. Ultimately, I think it goes to 300. Yeah, by when? This year? Well, my crystal ball was a little foggy today. But I would say somehow, some way before the end of the year. All right. Let's do another high flyer. Netflix up almost 50 percent since January 1st. Bono in trade it or fade it. I'm trading this one. And listen, I know that attractors will say that the valuation really is not compelling. And I tend to agree here. But this is more of a momentum trade for me.

15:34And they've gotten a lot of things right. Right. You look at the streaming wars that are going on with their competitors. You kind of look at the password sharing, the ad supported model that they've rolled out. I really don't want to find myself stepping in front of a train, particularly when I look at what has really driven returns for the market. This is one of those handful of names, so I'm going to stick with it. Courtney? I would fade this. I think exactly what you brought up in the first place is I think just the valuation here is my problem. And I think a lot of, they're doing a lot right.

16:01I don't want to discount that as a very great company. But when you look at their ad supported tiers, you look at them cracking down on the password sharing. I think a lot of that's unfortunately priced and it's a really high bar here. I think this is one of the companies is doing really well, but probably not acknowledging we're in this higher for longer rate environment, so I would fade it. But do they ever trade on valuation, Netflix? Which is a fair point, yeah. Maybe on the final one side there. Let's hit Amex because it's up 17 % this year. And Steve, play on the consumer, travel, trade it or trade it?

16:30The knee-jerk reaction was I wanted to fade this, but I'm going to trade this one. And if you start to see the millennials, this one was always associated with corporate buying or older people, more affluent purchaser. But now if you see that travel has been exploding, I think you could still have room to trade this one. Guy? I'll be in the fate of camp. I understand what Steve's saying. Valuation is compelling, but my concern is credit quality and delinquencies, I think, are going to start to grow. That's what's going to hurt the stock. All right, let's get to a housing trade. D.R. Horton rallying 46 % so far this year.

17:05It is hard to believe the homebuilders have had such a good run with these rising rates. Trade it or fade it, Courtney? I would definitely trade this. And I think it's, again, showing the resilience of the consumer here. Even with higher rates, there's no demand slowdown because the supply and demand is not going away with housing. But D.R. Horton is specifically in the entry-level homes. So all the people who are getting priced out, this is going to continue to benefit them. I would play this trade. Bonoan? We're on the same team. I'm with Courtney Homer. First time that's happened. I'm going to trade this one as well.

17:34And I get it. Listen, you want to look for places to be a contrarian, particularly given the year-to-date performance that it's had. But this is simply a supply-demand issue for me. And as long as there's a shortage of housing, I continue to want to look at this pocket as opposed to the commercial side. Which is why, right, they've outperformed so much, even with rates high, mortgage rates. What are we, back up to 7 % or higher? It's that low supply. When we come back on Fast Money, one stock came out of the oven, piping hot this week. What is it and what's behind the move? We're slicing into that trade next.

18:07You're watching Fast Money live from the Nasdaq market site in Times Square. We're back after a quick break.

18:20Welcome back to Fast Money. Our chart of the week is rolling in dough. Shares of Domino's Pizza rising almost 13 percent since Monday, even with today's loss. That is its best weekly gain since March 2020. Trade got hot two days ago after Domino's announced delivery deals with Uber Eats and Postmates. So keep Domino's stock on the menu, Guy. I do. And, you know, kudos to Steve again. Years ago, we talked about Domino's being a technology play, and he's right. That's why they get the premium valuation. And the stock, obviously, over the last year or so hasn't been particularly great. But it seems to found a home 25 times is not expensive for this stock.

18:58I think it rallies into earnings. Northeast Capital or somebody just upgraded the name yesterday. And as you probably know, Sarah Eisen, because you follow the fast money. I actually worked there and was employee of the month. We've got the tape. Despite the fact that I only worked there one day. Look at that. Kneading dough, putting the sauce on. That's just pizza making at its finest. And servicing customers right there. You did deliveries too? That was a different job over different times, probably for a different time slot, different show. I would have loved to have gotten a Domino's delivery from Guy.

19:35What about the stock, Steve? Yeah, so as Guy said, it's had an incredible run, and they were on the forefront with the digital ordering and everything else. But now they were always a little late to Uber and third-party delivery. Now they're going to allow Postmates and Uber to start delivering it. But you're still going to have a Domino's employee deliver it. They'll just be on the Uber platform and the Postmates platform. Right. So this is why, and not, I mean, you know, I always play devil's advocate. I didn't understand the move higher because to me it was a signal that this was their whole competitive moat, right?

20:12That they were supposed to do the technology and the delivery. That's why you and I are on the same page because I think. And now Uber's doing it. And now Uber's going to participate in the revenue upside. Exactly. So I think even though it's been a tremendous outperformer, I think you have to sort of take some profits here. It's been an unbelievable run. Kudos to them and the team. But I think the run is over. Bonoan? Yeah, I'm with you on the delivery side. And I think that's really why there has been some challenges aside from the recent weekly run up. But I do think there is a bit of a shift of focus to actually carrying out there.

20:44And that's where I think the technological upside is still there. and why I do think, you know, given where the stock has been over the last couple of years, you probably do still have a little bit of upside here. Right. Maybe, Guy, if you go back, like that'll be the next catalyst for the move up. Go back, work in there part time. We'll put it out there. They watch the show. I mean, put it out there right now. I can go next week. I'll start Tuesday. I'm putting it out there. We've got a tight labor market. It's time for the final trade. Let's go around the horn. Guy, back to you. We mentioned health care.

21:15Bristol-Myers, I think on the 27th, I think the stock rallies in earnings, Sarah. Bonoan. We've got a tight labor market. We've got a tight housing market. DHI. Courtney. There's actually one we've all agreed on was housing. You stole my final trade. I shared. I was like, I'm going with ITV. DR Horton is the top holding there, but you really want to look at all your home builders here. Steve. Grayscale Ethereum Trust. This one looked like it was ready to pop to me. Mid-June, it started to pop. I think it has more in it, but it's going to be a back and forth in this one. ultimately, I think it gets to about 20 bucks.