Moment of truth. Earnings season is underway and ek peckations have come down. Are expeck tags too low and they feel the next leg of this rally. For earnings i think they are too low. Earnings per share. Thats what obviously is market is based on. But what i think is probably too high is the expectations for revenue. I think it comes county this this once again. Earnings growth is what it is. It can be manufactured, engineered, but you cant make up Revenue Growth. That divide between eps and Revenue Growth continues to widen out. Market has not cared about it nor should it given where rates are, which has been tims argument. But at some point, you need commensurate Revenue Growth. What have companies have guided conservatively and no one cares about quarter. So, is this the time when the market gives ceos and maybe its time to kitchen sink it a lilt bit or to weigh on being more conservative in the shortterm, but we see some things changing in our Business Model. I dont know. The question is could this be a beginning of sandbag season when it comes to the Conference Calls. Are we going to hear repeatingly, it was brexit, the weather. All these litany of kuss that could roll out. Why not do that now. Im sort of, i would be very skeptical of an Earnings Release that cited brexit as a meaningful indicatoindicator. Event for last quarter or this coming quarter. I think one cant possibly now. I think youre right, that happen, i will not want to see that from the company. Disappointing. But heres the thing. We have this, its almost like a free quarter. What concerns me is that weve had a a tremendous run coming in. Im always looking at how its position going into event farnd me, when i look at this, it might be the reason why the markets rallied. Expectations were so low. Theres a million excuses of why things could be bad, so lets buy the market. Now, were up what, 10, 15 off the lows. For me, it might be a sell the news event. Weve had ceo of bank of america, Merrill Lynch on. A friend of show had an interesting chart out saying that u. S. Fund managers who own u. S. Stocks are not positioned well because they dooechbt realize the amount of european exposure those u. S. Stocks have and when earnings season coming out, not using her words, but that could be the next tape bomb so to speak. I dont think its any different in this quarter than the first or fout of last year. To brians point, think of this sets, the people want to take this market higher and it would be the financials. Tech. And i think you have a place where certainly the expectations or the run or price action on those sectors going into this earnings season have been terrible. Financials have gotten a boost in the last week. So if you think about the places that are vulnerable, gets back to things that i think a lot of people have said. There are places very vulnerable and they include Consumer Products and certainly things that are trading well past their longterm horizon. By the way the to your point, financials and tech could have plen oi of european risks associated. Absolutely. Tim mentioned something, i think scott said the other day. Its not about this quarter, probably not about next. The markets lookinging Fourth Quarter or First Quarter of next year and in terms of european exposure visa vie brexit. It could if you saw delays in edition making leading up to brexit, which we have heard about. Im not going to necessarily build that factor or make that decision to hire that extra worker until i know whats going on with brexit. So you could see a slowdown, but i think it probably doesnt matter because that was priced in on the twoday panic that we had, which was nothing. So, if its not going toob another quouquarter or two are gloldilocks period . Weve got markets at highs. People want to buy in and here we are. Let me be a tone of cautious on that one. Theres no way when we know earnings arent going to be great. The reality is how bad are they going to be. Its about relative opportunity to have them be better, but i think there are sectors and in the materials sector, there are places where these companies have Free Cash Flow generation. There will be sectors that will be doing better this quarter. What are the areas of the market you feel more confident about when it comes to earnings season . I think the expeck tases are so low in industrials, thats one area thats gotten crushed, so i think thats good. Well get to probably later, but airlines now. I think are interesting here. For me, metals and mining. That xme, is etf for metals and mining and ill give you the bullish case for the industrial, met dahls and mining. If what happened in japan, that miscal stimulus is something that catches on the with rest of the world and we get this wave of stimulus, ill be a debt fueled bad ending, that could be a catalyst for the market. Three bogeymen. I love just saying it. You could walk in one day, china could devalue anywhere from 5 to 8 given the landscape we find ourselves in. Not bullish because theyve been trying to play nice in the sand box. They see whats going on in japan, europe, starting went from 150 down to 130ish. They say why, we can play this game. Because the yen is 15 weaker. Dollar is not rallying. The pressure is is off these guys to do something dramatic. But understanding though, there is it benefits them for their currency to be devalued. I think we can agree. Maybe thats a if its not a bogeyman, what is it . Is vix when it gets down to 13. That has been a point where the market has sold off. Were seeing it now. And oil very quietly has gone from Dennis Gartman, commodity king, from 50 to 50. 5. Is this the next turndown . I dont know, but maybe its beginning. Actually, two bogy men. Two and a half. Doesnt have to be a bogeyman to me. Two side to every trade. Speaking of bogeymen, lets get to commodities. Crude losing 4 today now earlier today, Dennis Gartman said quote, we are rushing this morning to cover short positions we think these reversals are Strong Enough to warrant a punt u to the long side of crude. So, where does he stand now . He joins us now. Whats your position right now, dennis . Ly, modestly, not overtly, pleasantly long and i predicate that on the fact that ive been short since late june, early july. Crude oil had been coming down for quite a period of time as far as i was concerned. The contango had been widening, but yesterday, the term structure shifteded rather dramatically. Thats always interesting to me and you had a technical circumstances where you had a new low for the move, closed high on the day. Those things are enough to allow me for the first time in a while not to be bearish on crude, but to take a punt on the long side. Am i overtly ecstatic about it . No. Am i largely no. Will i become more largely involved . If the market tells me im right and for the last four hour, its told me, dennis, not so smart. It moved 50 cents against me. Sounds like a very technical reason you went moderately pleasantly long. Does it need to have a fundamental catalyst for you to keep that long on or to get more constructive or can it higher on technicals . Well, i think over the course of the last several months, crude oil has moved predominantly on technicals alone. The only major fundamental that has been bearish has been sorry, dennis. Im going to interrupt. Im sure our audience can hear were in the midst of a fire alarm here at the nasdaq. Its an event that continues to happen. Second time in the last two weeks. Increasing in frequency. The loud voices, theyre not in your head, theyre here at the nasdaq announcing the fire a alarm. You said for many months, its been moving purely on a technical basis. It has been, but what was bothering me all a along and why ive had a marked propensity to be bearish of crude, was the fact the term structure was telling me that. I pay dramatic attention, very real attention to what the term structure, the con tang o tells me. Suddenly yesterday, it turned the other way. Thats what i call informed money, making a Material Change and when i saw both the contango narrow and market reverse to the upside and outside reversal, that was enough to change my opinion on crude. Am i ecstatic about it . Overtly involved . No. If the market i saw it, you framed your argument in your cautious was that you were saying, you were somewhat bearish of crude and that, somewhere towards tend, you highlight that on spry side, youre not comfortable. Were more or less where we are things hasnt changed that much where i siee you awe production down almost a a million barrels. Despite some of the choppyness in the rigged counts. So can you reconcile that . Thats a little confusing. Rigged counts have been down for almost go years now. It appear theyre start tog bottom out. The only reason they are is because you had a a wide contango and got up to 51, 52 which gave you about 56 in one year nor quaforward. That was sufficient to bring on frackers and especially for the baines. The one problem i have is the fact that the saudis with this new program that they put forward, this program 2030, i think its clear that the saudis are going to sell as much crude oil as they can all the time as quickly as theyre able to do it because i think they realize in 40 years, crude becomes an unimportant zero cost of fuel. Well have replaceded it with Something Else. That shall always be there and make me antsy about being bullish at any time, but for now, youve had a technical circumstances that told me lets get, lets not be short. Try the long side for a while. Can i be wrong in tim, ive been wrong a lot. The important thing in the business of trading is if youre wrong, admit it quickly, get to the sidelines, go find Something Else to do. Good advice, dennis. Were going to leave it there. Thank you. Dennis gartman. Unfazed by the fire alarm as we are as well. When you take a look at what actually got i dont want to say wreck, but more damaged, services names. Refirns held up decently. Are we to glean any of this . It looks that way. If you look at the oil etf, the symbol xop, that really got crushed today. For me, i look at the crude oil market. The last time we had a supply glut and a strong dollar, a longterm strong collar was in 1980 and you have this range in the 80s, about how down to 20. Thats kind of the model im looking at here. You get some downdraft add some point then the counts cut out. I dont think theres a lot of money being made on the downside nor the upside in crude. You know, range of 40 to 20 is an extraordinary rate. In the 80s. And weve had that kind of volatility. Todays numbers, eia numbers, they showed it was a heavy duty supply or lack of demand during peak gas season for gas and product. That pushed a loft these things down. This is a choppy series. You should care about the supply of oil and production and thats something to me is leveling out. Chevron, bp. Coming up in february, citigroup said the Global Economy was in a death sprirl. Now, that strategist is saying to buy stocks. Hell be here to explain why the sudden change of heart and later, small caps are going something they havent in five years. Well tell you what this is and later, a classic contrarian indicator might be signalling that the rally has lots of room to run and it likely involves you. Well explain when fs munz returns. Shars of value enter unveiling a new position saying the stock is ab obvious zero. His words. According to new documents, former ceo, Michael Pearson, unloaded more of his holdings than thought. We also found out se quoi area funds sold its entire position. What do you think . A lot going on. I dont know if that its business decision buzz they threatened their sbrir franchise. Lets put that aside for a minute. This stock, it has rallied over the last week or to because the overall market is going up quickly, but they have so many unique problems. Some we dont even know about. Theres a giant amount of debt. Theres 30 billion of net debt theyve got address somehow. And i would be short. I dont have a position because it could be volatile, but i would be short. Actually, im sort of thinking of initiating something because i cant see how they get out of this. Without doing something destructive to the stock. How much should we read into the fact that Michael Pearson has dumped a bunch of shares into the market . Its not encouraging. Take anything you want from it, be better if he brought shares. I dont know if hes in a position to do that. The new cycle is such that you have seen bounces to karens point, but the trend continues to be lower and i dont know how that trend stops. Maybe after they report earnings, maybe they Say Something magical. Still a lot of people that could get blown up. I still think it goes down. Without some, a big caveat, without a major accounting fi areas ko, the sum of the parts is says this business the worth more than its price tag. We dont know. I think theyre not even worth anything close to some of those now. And theres a giant liability of litigation that we havent seen yet. We dont know what that is. Ags are all over this. Cms. You cant talk about litigation that hasnt happened yet, but youpg that the bauch and loam franchise is marked . Lack at the equity, not the sbrer prize. Its 7 billion. Cheap on earnings, but 30 billion of debt plus whatever obligations we dont even know about and theyre trying to fire or sell assets. I think at the end of the day, thats a good point. The reality is that these guys have a Balance Sheet thats very much in question. It is a highly levered business. Theyve talked about the businesses that maybe dont have that extreme value. What karen said. Sounded good. Here, its the debt problem for me. Its way too volatile. Way too many unknowns to try to take for me, a long or short position. If i did it, id lean towards short and in an option position. The debt load, i dont know how they cover it. Remember the old Business Model is when they took this out. I dont know. Still ahead. Theres a small indicator in the market that could mean big gains for stocks. Weve got the details after the break. Youre watching fast money on cnbc. First in business worldwide. Heres what else is coming up on fast. What do these three things have in common . America is more interested in them than they are the stock markets record highs. I dont know what happened. And that could spell even more gains for your portfolio. Well tell you why. Plus, heres where a citigroup strategist said the world was going in february. But now, that same strategist says its actually a little more like this. The hills are alive with the sound of music so what suddenly changed . The man behind the flipflop will explain when fast money returns. 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Hey, so, this game you see in the russell 2000 goes back to 1978. 10 or more over a tenday trading period. Theres been 17 where weve gotten to similar levels above our 50day moving average as we have now, so theres some periods where in like 08, got back to 10 . This move in the russell 2000 is coming with an extraordinary move and Global Equity, we went from one of the most extreme downside moves in u. S. Equities ore a twoday period to one of second most extreme upside movements in 12 days. One was the most extreme on record and the only other time where we saw a move like this over the prior tenday period relative to the trading range was in august of 1982. There were two other periods where we saw not quite as strong, but it was 1963 and 1984, so, those periods when you look at those when youve seen this extreme upside move, longer term, 136 and 12 months, the s p was higher in all three periods. Over the next six and 12 months. Getting back the small caps here, during these periods where we saw the big moves had outperformed the s p 500. Twothirds of the time and have seen strong moves and i think in this current period you look at small cap, u. S. Is a safe haven. They fell a lot further over the last year and a half, so their pes are high, what isnt high right now, but their pes came in in to 20 5 and the earlier part of this year and they have Little International exposure. In that respect, going towards companies that have had Little International exposure and we expect this to continue. Sxwl part of the rally in small caps is coincidence with the rally weve seen at the s p 500, so when you say one to three months, that means those gains are specifically from the end of the tenday period. Another. So you see an additional gains in the aftermarket. The russell 2000, the returns have been hit or miss. Its like a coin flip. But one in three months, in this environment, if we did see a small pullback, we would use that as an opportunity to be buying rather than running away. Thanks for coming by. Guy, what do you make of this . Its an interesting point. They have broken down. If you lack at the arks wms, small caps, middle of last year and broke to the upside. Probably three or four weeks ago. Tim had been used the russell as a hunlg against the long book and it has broken out significantly. Maybe a lot of that has been going on. Im still not a huge believer, but the trend is in fact to the upside here. I