tv Fast Money CNBC January 14, 2016 5:00pm-6:01pm EST
underperformer of late in 2016. we've got the one biotech stock could move big time to the upside. all about the catalyst and the stock's prospects. thank you, kelly. "fast money" starts right now. live from the nasdaq market site in times square. i'm melissa lee. the man who called the swoon has a stunning call on crude and the markets. one key part of the market that predicted the recent sell-off is flashing a major warning sign. what that is and how you can protect yourself. >> intel out with a beat. the stock is down in the after-hours session. first, we start off with the big market rally. the dow jumping more than 300 points after yesterday's brutal sell-off. s&p out of correction territory as oil staged a comeback helping to set the tone for the rally.
jpmorgan beating on top and bottom line. was everybody out there a little bit too early saying that old bull market was dead? >> early in so much as today was an interesting day. i don't think they are going to be wrong. i'm not going to pretend and say i saw today coming because i didn't. if you look at what today did, traded down, tested the august 24th low in the s&p, rejected it, spent the rest of the day rallying. this comes on the heels where the market opened higher. steve mentioned 1960 in the s&p to revisit. i think we fail if and when we get there. were they too early? yes. today was obviously a day that hurt a lot of those people. the reverse on oil set that in motion. i think monday and tuesday's move in the big cap energy names, despite crude going down, it all led to today. i think it's going to be
short-lived, at west. >> you thought the jpmorgan call was very positive. >> i thought they are u.s. centric, but not entirely u.s. if you listen to the comments on the call and look through the earnings without knowing what was going on in the markets, would you have seen nice loan growth, net interest market expansion. both are really good. you would have seen capital getting stronger. you would have seen an incresse in energy reserves. that's not unexpected. i thought it was good. i thought the way they talked about the u.s. economy, it's doing fine but not great. it's doing fine. i thought the stock should have been up more than it was today on what i thought were decent earnings. >> i would say in this environment, going into this environment, people had been
worried about the banks and credit contagion. the consumer is down more. they said there was a 63% rise in the energy-related nonperforming loans. deteriorating credit quality is what i think people have been selling the banks on. their core business, their investment banking numbers were better. the things they do blocking and tackling, consumer deposits, they are two times their closest peer. >> back to the question, is there a read-through from jpmorgan? are things better wean think? >> i think this is a jpmorgan specific story. oil has further to fall. people get caught up in calling bottoms in oil that everyone starts to buy into it. they start to buy the large names underneath it. i've seen guys reaching for the
oil names in this marketplace. s&p, 1867 is the line in the sand. guy didn't give himself enough credit. we'll bounce to 1960 because of expirations tomorrow. i think they'll position into that. i think we'll make new lows. >> sounds like there is skepticism. when you see a big move in integrated oils, exxonmobil was up. is that the move you fade in this market environment? >> no. it started on monday and tuesday when oil was still getting -- oil was down 5%. the tape was sketchy. exxonmobil was up on a day, we discussed it on the desk. it was tuesday. that was a change in what we've been seeing with exxon. maybe the worst for the stock is in. what happens is they report like they did last quarter. you get a knee-jerk higher north of $80. >> that rally led by energy has been sold. it's going to be bought. up to this point, it's been a
sold energy rally. you have to be skeptical. >> what were you doing today? >> it's about rolling down puts. you take an opportunity where volatility is going to go significantly higher. if i agree with any one thing everyone on this desk i think believes, this environment didn't change today. we are in a challenging three, possibly six months. own volatility. take days like today when volatility drops a bit. the iwm replicates the russell. i add into those puts. >> he called the august swoon and is back with a stunning call on crude as well as the markets. jpmorgan's global head of derivative and quantitative strategy and here with an exclusive interview. we see a volatile start to 2016. it got kicked off because of china. it automatically brings the investor back to august. you predicted the swoon, but you're saying it won't be
another august swoon. >> it's not going to be as bad as august. some of these systemic strategies sold quite a bit. we estimate about 60% of their leverage is down. keep in mind it started in december with the ecb. we had big moves in bonds and equities. that triggered some selling. momentum turned negative, feed more into selling. december and early january, many of these strategies took down equity exposure which can explain why we didn't have a christmas rally this year and why we had such a bad start of january. i think risk is now a little bit lower. risk is not completely gone. if the volatility goes higher, they could continue selling. more importantly, we do have fundamental concerns and deterioration in sentiment. >> you say there is a 25% chance of a bear market? >> that's what options are telling you. when i look at various analysis, they imply higher percentage.
one thing i was looking at is basically history with bear and bull markets over the past 50 years. you have about 20 cycles in the last 50 years. when you compare the size of the bear or bull market and the duration, there is a high correlation. we had a bad bear market in 2008. hence, we had a long rally in time around, almost seven years of a bull market. if you look at the current length and size of the bull market, it's consistent if the bull market was today it would be historical average. that's why i'm reading there is more 50/50 chance. >> i want to lay the ground work to your call on oil. conventional wisdom shows extended periods of time oil and s&p 500 are correlated. except in certain instances and we may be in one of those right now. >> correct. generally oil and equity prices move roughly together over
longer periods of time. if you look at outperformance of oil versus s&p, it's a fairly volatile time serious. in the last 30 years we had about ten episodes where oil significantly underperformed the equities. that's 60% below the s&p in a year. now is one of those instances. if you look at the history, about ten of these instances and all ten of them oil did come back. this convergence can happen two ways. you have oil going higher or s&p going lower or some combination of the both. we think this time is not different than the history. we think that we will see convergence on that spread. our estimation is oil is likely to go higher. >> relative call versus s&p. >> that would be long oil and
short index? >> the long/short trade. we like energy. we've been long energy. not necessarily based on these oil arguments. that would be one of the trades we like. >> to piece this together because there is only a 25% chance in the options market of a bear market, you see the higher. if you are calling for short s&p 500 and we've seen a drawdown from its highs, how far do you go on the short side for the s&p? >> that's a very good question. we are down about 10% from the peak which was mid last year. if we do go into bear market, and bear market is defined as a 20% pullback from the peak, that could mean 10% more s&p. on average bear markets were more like 35%. probably if we have an average bear market, it will be another 15% or 20% lower from here. in terms of level that would be
1,700 or in worst case about 1,500. >> oil to the upside? these are mean reversion trades. >> oil to the up side, we think our house view is still for the year end we have oil price much higher than here. obviously, everybody is giving this latest leg down to see what to think of oil. i think $45, $50 is fully reasonable to expect. doubling oil price to $60 is quite possible based on historical analysis. >> we've got to leave it there. thank you for joining us. >> the things marco is talking about are things he mentioned last time. the mean reversion trade is the most powerful concept to explore. if you're saying oil can outperform the s&p, you are saying other asset classes, i'm questioning whether you could see outperformance from emerging
markets, things that had been a painful trade would have been to be short the s&p, long e.m., long commodities, long anything that fits the same bill as oil here. sometimes these are three, four year trends that have to be broken. we're there. that's the interesting part of '16. emerging markets had their correction. if you look at a number of other commodity classes, that's consistent with what marco is saying. >> it's fascinating because i wouldn't have thought he would think that. i would think the market proxy is oil. as oil goes up, stocks go up. i do think the energy space is so overdone. if you look at the xle which is weighted to the bigger names which have better balance sheets, that's a very interesting way to play it. >> i think there's been a lag clearly. crude started going down in november '14 when it topped out. the s&p topped out in may of
last year, right? you have the six to seven month lag. i read into it saying oil could stabilize here. s&p could be down to the levels 1620. percentagewise that marco said gets you exactly there. stabilization in crude, then they potentially move in tandem at the back half of the year. >> what you have to realize is crude, funds are going to go out of business because they are lever to the performance to that underlying commodity. if crude does not trade above $40, everyone goes out of business. companies, enps priced in their equity price are going out of business. there will be more to fall. up next, intel hovering around the lose after hours despite earnings beat. we'll bring you the headlines from intel's ceo. the one area of the market that correctly predicted the sell-off is signaling more pain ahead in the markets. how you can protect yourself. biotech bouncing back but
could a key fda meeting be the one thing to send the sector tumbling once again? we'll explain. at ally bank no branches equals great rates. it's a fact. kind of like reunions equal blatant lying. the company is actually doing really well on, on social media. oh that's interesting. i - i started social media. oh! it was my...baby.
welcome back. i'm seema mody with a news alert. another apple supplier guiding down. analog devices expects first quarter to be in the range of $745 to $765 million which is well below its previous estimate. citing weaker than forecasted customer demand in its portable consumer business unit, which it sees continuing into the second fiscal quarter. analog devices is widely seen as one of the chip devices for apple's four touch screens. shares of apple are moving lower after hours by 0.5% after gaining about 2% in the regular trading session. >> seema mody, thank you. >> made a 52-week low. now trading well below that.
44.50 was the low the stock made in 2014. '15 was a round turn for the name. you get a chance at $44.50, you buy the name. >> we've got earnings alert. josh lipton is in san francisco. what's new? >> intel beat there on the bottom and top. the concern was working through the business divisions. the pc business. $8.8 billion. that was better than expected. no one expects much from that division. that is a market under a lot of pressure. some surprised the data center group, $4.3 billion undershoots what the street wanted to see. intel bulls a pin a lot of their hopes on that division. intel ceo was talking about the data center group.
>> the data center was on our expectations. the investor meeting we did in the fourth quarter, we said we expected the data center would be up in the low double digits for the year. it was up 11%. when you look at it, we've seen two strong years of growth and expecting 2016 as another year of growth. >> also internet grew 625 million. intel did miss that initial move to mobile determined not to miss the move to internet of things. i'm going to hop back on the call and bring you more headlines. >> thank you so much. alex, good to have you with us. you went to a buy rating on intel january 5th. you did say disappointing data numbers would send the stock lower which is what we are seeing. do you need to reset your expectations for that growth area given what intel is saying
tonight? >> at this juncture, we wouldn't think so. the good news was that we thought pc trends were stabilizing. keep in mind pcs and data center are two sides of the same coin. virtualization is a fundamental that is happening. they did miss that number. for the full year, it's still 11% growth. that is close to their mid teens target. things in data center can be lumpy. in a challenging environment, we were overall look at the health of the business. very attractive cash flows and 3.2% dividend yield. >> when you look at intel and you see the businesses they want to get into, data centers, internet of everything, smart cars, would you rather take a gamble and buy intel, a veteran
name or go invidia and you get a discount getting into nvidia right now? >> j&p securities recommends nvida over intel. we think they are going to be a leader in the space of autonomous driving. the good news for intel, it has woken up. still a virtual monopolist. it will align itself more closely with apple going forward. we'll see how they do it whether through the mobile business or the foundry business they are developing. we think that is good news for
intel later this year. >> we'll let you jump back on the call. >> there was a lot of bullishness, a number of upgrades. >> i think what you do is nothing. this stock is very interesting here. maybe not at these levels. the $29 level could trade to. i think there is nothing wrong with our business. everyone said they transitioned nicely away from pcs to data centers. i think there are reasons to feel intel is a defensive stock here. >> great balance sheet. aligni aligning oneself might not be the best news. the first quarter guidance for gross margins was 58%, significantly lower than the street was looking for. it's not expensive. they are only 60% pcs. that numbered used to be higher.
if it gets to that level $29, you buy the stock. >> 4.7% is decline in afterhours. chrysler tumbling. accusations the company is trying to inflate sales. stocks may have rallied today, but there is an ominous warning in a crucial part of the market. >> don't mess with the bull, you'll get the horns. >> why it could have big implications for your money. >> biotech beatdown or not? the one stock that could lead the sector's comeback next week.
rates. it expects to recognize an impairment charge of approximately $4.9 billion post tax. shares of bp billiton are down 0.3% after hours. >> thank you. shutting two rigs. what do you make of bhp? >> probably the best diversified global miner out there, probably the best balance sheet. i don't think this news changes their fortune. it's probably pegged to cop other, iron ore and the rest of the complex. it's why i think oil is starting to rally, because again, rate caps are down. that is not sustainable to production. >> fiat chrysler getting wrapped in a scandal after two dealerships are accusing the automaker of inflating sales. >> the complaint comes down to this. you've got a dealership group in
illinois which says at our fiat chrysler dealerships, we were encouraged to mark sales at the end of every month even though we weren't reaching sales targets. saying hey, if you don't have it, market it to meet volumes next month. the suit uses the rico statute because napeleton is accusing other dealers for being co-conspirators, going along with this and marking sales that had not taken place. we reached out in the lawsuit statement from the napleton complaint says fca actions have been arbitrary. fiat chrysler says the company is confident in the integrity of its business process and intends
to defend this action vigorously. shares of fiat chrysler which were down 8% in trading in milan earlier today were also down here in the u.s. a lot of allegations about napleton being encouraged to market sales but there are complaints how fiat chrysler was putting another dealership near them. this is a long-running feud. any time an automaker is accused of falls guying monthly sales reports, that is going to get a lot of attention. not only from investors but perhaps eventually regulators. >> give me a sense on the spectrum of auto scandals, we have the gm ignition and volkswagen, where does this fall? how big a deal is this? >> right now, it's nowhere close to that.
it could be if other dealerships come forward and say, the same thing happened with us we were told to market sales that happened at the end of the month to get these volume discounts. then put it in the loaner program, put it in the demo program even though you didn't sell the vehicle. if this is the only one, i don't think this will last for very long and i wouldn't be surprised if they settled this out of court. >> thank you. phil lebeau in chicago for us. in a world which auto sales might have hit peak and stocks have not done well, is there a reason to be in fiat chrysler? >> i think so. i think they have the most diversified global business. there are places sales could be strong including china. stocks trade very cheap. it's a global company.
i like it. >> coming back here, even on a day like today when everything bounced and you see ford trading at a couple of year lows, can't get out of its own way. what is ailing the stock? we could argue it's cheap. your point about peak autos, if we reached it, one has to wonder what is going to happen to ford, especially if the world turns out the way marco outlined. >> fiat down 18% year-to-date. ford is down year-to-date. we are in january. if you think we are entering a recession, which many people do or on the cusp of it, you are not going to build homes or use that ford f-150. no reason to be in autos. there is an ominous warning in the markets. intel lower after hours by 4.6%. we'll hear from the ceo. i'm only in my 60's.
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with sleep number. welcome back to "fast money." the s&p rallied more than 1.5, dow gained 227 points. energy was the biggest winner surging more than 4.5% as crude oil bounced off a 12-year low. intel shares moving lower in the after hours despite an earnings beat on top and bottom lines. we'll hear from the ceo on what drove the quarter. >> the big biotech name that could be a huge move next week and how you should play it in "stock therapy." the s&p is down 6% on the year. with fears of a global economic slowdown, the possibility of contagion could remain a real threat. who better to uncover the truth than cnbc's own secret agent dom
chu? >> let's take a look at our secret agent radar for what constitutes a financial contagion. there are major concepts. it starts locally. it goes and spreads to other geographies and asset classes as well. it could lead to some widespread financial distress for selling, margin calls. we've seen a handful of these things in recent memory. remember 1997, the asian financial crisis, it started in thailand and spread through southeast asia, hit europe and the u.s., as well. the other one here is the 2007/2008 mortgage crisis. the subprime crisis started off with that particular part of the market and spread all over the u.s. economy and globally as well. the reason we are talking about it today, china could be the next financial contagion. could be. the risk there has everybody worried. that's the reason why we keep on
talking about what's happening with contagion. we'll see if things pan out. >> thank you, dom chu. our next guest has never been more bearish on the space. michael, great to have you with us. last time you were here you made the comparison of the high yield market to a slow-moving train wreck. what is it going to look at this point? >> we have negative total returns in 2016. the big story is we are at a fork in the road. the fork could go two ways. this is 2011. just like the debt downgrade, everything is a big overreaction. china is going to manage its slowdown. qe in europe is going to work. this is going to represent a
great buying opportunity. the other fork in a road is that this is the end of the credit cycle. if it's the end of the credit cycle, prices need to fall further. defaults need to pick up and it could be a big issue for the economy and investing landscape. >> you are taking the bear irk fork. you are saying the high-yield market is forecasting economic malaise for 2016 and '17? >> that's right. as we look at the high-yield market, we look at triple-c issuance which plummeted. that is a terrible sign. investors are no longer willing to fund risky companies. earnings growth in u.s. high yield is the worst it's been in a nonrecessionary period since 2000. that's an awful signal. the contagion argument. the weakest links go first. it was metals in mining, energy. it was high yield. then what happened when we started the new year, stocks are off 8% leading into today.
>> your forecasting a real spike in defaults. we are going from 3% or so last year to what you are seeing is going to be double that? should we be concerned about contagion from that in and of itself? >> into the real economy? not in 2016. 2016 you are not going to see a big enough to fall wave or big enough environment to affect the consumer. >> if u.s. economic growth doesn't begin to accelerate, was 1% we are forecasting for q-4, if that remains another year and you have into '17, 6%, 8% default rates, that is a real concern. >> when you say risk asset malaise, what does that mean?
>> we just did an an analysis where we looked at the underperforming of equities. you had a big sell-off in high yield going into the end of the year. i think this is a bit of a ketchup of the equity market to high yield. if the high yield market is any signal, you would have one of two things happen. either high yield needs to rally or equities should fall. if you want to get back into that equalibrium. >> you're thinking the equity side? >> as a house we are more positive on equities than what the high yield market would suggest. we've seen the high yield market tends to foreshadow equity weakness. >> in prior credit down turns we've seen, the creditors were more often banks, they were more often not hedge funds. so you have a different holder base that seems insulated from
causing a contagion. what do you think about that set-up that i think we're in now? >> it's interesting. when people talk about recessions or credit cycles, the natural inclination we think 2008 crisis. you don't have to have a 2008 crisis for things to feel bad, right? the banks offloaded the risk to the buy side now. we don't use as much balance sheet. the buy side has taken on the risk. that's where the real concern is. the liquidity there doesn't exist. >> why isn't this an asset class issue where you have bifurcation? one of the points you made is what scares you is single and double b haven't moved at all or they're relatively close to the types we saw in june '14. how about the argument bad issuance isn't going to happen? there would be more demand and these things look better than
ever? >> good point. you will see the quality of the overall market improve. the worse credits fallout, the better come in. as you look at the higher portion of the better quality sections, as they get downgraded, that adds a lot of segments to the market. >> thanks for coming by. a lot of this has to do with what's happening commodities, in my opinion. you need best case for oil to stabilize and maybe kick back a few more dollars at least to be stalled for the next few months. i agree in terms of the high yield camp. you are not seeing it in the hyg, the etf. we talked about $80 being a level. i think if it does happen what he is talking about, the move could be drastic to the down
side. >> let's get to fine print here. jp morgan saying it was adding to reserves. you're short a bank. >> i am. bokf is the ticker. yesterday they came out with an announcement they are seeing credit grade migration. you've got to be aware of credit grade migration. i hate phrases like that. that means their credit quality is deteriorating. they increase their reserves. i think this is the tip of the iceberg. if you look at their specific balance sheet, the biggest bucket is in energy, biggest exposure in terms of geography is in texas and oklahoma. it's not just energy. energy will continue to get worse. there are some companies that may still be performing that may not be performing as they run
out of cash. the ripple effects through the economies that are somewhat energy dependent. texas may be more diverse. the whole credit profile will continue to worsen. we haven't seen it yet. i think that will continue to happen. this bank was down a lot. it still isn't cheap. it's north of book. it trades at 11 times earnings which is below its own normal p.e. when i think we are hitting the tip of the energy iceberg, we are short. i'm staying short for a while. >> there could be more stock price migration. those are 52 week lows. >> there is a 3% dividend yield. you have to wonder how safe the dividend is.
welcome back to "fast money." no surprise on the intel conference call. lots of questions about the data center business. if you're an intel bull because you pin hopes on that business. intel did see revenue there $4.3 billion. that did undershoot what the street wanted to see. listen to what intel executives had to say about that business. >> the data center group grew 11% over last year to an all-time record to $16 billion in revenue. macroweakness weighed on enterprise demand and resulted in slower growth than expected the beginning of the year. however, dcg's overall
performance highlighted the underlying trends driving data center demands. >> analysts did flat-out ask do you expect to get back to double-digit growth in that business? he is saying q-42014 saw strong growth. he said cloud guys always tend to slow down in the fourth quarter. yes, he said, intel is confident the company will see double-digit growth in that group. sticking to that forecast. back to you. >> thank you very much, josh lipton. i was checking on semiconductor stocks. a number are trader lower, thou not vibrant trade. what is the read through you make from intel to the others. >> as we started off the show, you have to go where you are trying to be. intel, though they are trying to migrate away from pcs and get into data centers, you want to go directly where you want to be.
that's why i said nvidia is a better choice. $31.72 is the 31-day moving average. >> what would be weaker or stronger? >> in tomorrow's trade? >> in general. >> the point here is the data center was expected to be 15% as guided by the company. the bar was way too high. nvidia is apples and oranges. nvidia has been kicking it. they are in a space where intel is trying to transition. the expectations are so high. there is nothing wrong here. >> despite the rally, biotech is hovering at its august flash crash lows. meg tirrell explains why it could be in for a major move next week.
>> you're allowed to say meg? >> meg tirrell. >> it has been a tough week here in san francisco and everywhere for biotech this week. folks are looking to next week for a big event from sarepta. this has been dramatic. it is a progressive, rare and fatal disease that puts kids in wheelchairs before they are 13 years old and often they don't live till their 30s. there is nothing on the market. the patient community is desperate. today biomarin got rejected at the fda for its drug for duchenne. you didn't see the stock react too much. next week sarepta goes in front of the fda. wednesday morning we'll see the briefing documents come out.
friday is the day sarepta presents in front of that panel of advisors. the expectations are more positive for sarepta. folks do expect the briefing documents could be harsh. jeffries putting 70% chance of approval. approval would come later in february. baird low at 35%. i got off the phone with rbc, he is more positive, 65% to 70% chance of approval. next week will be the fda discussing this and stock moves could be big. probably negative wednesday and more positive coming out of friday. you see probably hundreds of patients in the community coming to testify and show their support for this drug. >> meg tirrell thank you so much. from 70% to 35%? >> sarepta is a volatile stock. now you find that smack dab in the middle of a range we've
seen, which is interesting. big short interests, binary play, but given the two names meg mentioned, biomarin is a better play here. if i may use this phrase, it's a safer play. given the choice between the two, biomarin. some traders are bet are that express scripts could fall to a new low. >> today traded about three times the average daily put volume. that represented about 50% more puts than call trading. the stock continued to trade lower throughout the day we saw one institutional buyer pay $1.15 for 1,500 of the february 70 puts. that is betting a substantial amount the stock could fall below $69 in 35 days. >> mike, thanks for that. check out the full show tomorrow
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>>. >> it is time for the final trade. let's go around the horn. >> disappointing price action in netflix. this is still over to $95 then we'll see. >> seller. >> plenty of retail -- take two. retail. that's the word. plenty of retail names outperformed. children's place is one of them. up 13% year-to-date. has more juice left. major resistance at the $70 mark. >> i love that trade. xle is a worth to look at. energy exposure without having to pick individual names. i like it.
>> mel, have a great vacation. >> i'm off on vacation. i'll see new a week or so. stay tuned. more my mission is simple. to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere. my job is to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to make you money. my job isn't just to entertain but to educate and teach you. call me at 1-800-743-cnbc. or tweet me @jimcramer. suddenly, out of nowhere, we checked a half dozen boxes, at least momentarily, and people are feeling better about the big issues that have