tonight on options action, the fed makes no bones about i .rates will continue to rise until inflation is under control, the markets with a sharp friday selloff, the dow closing down over 1000 points, the s&p 500 dropping over 3% and the nasdaq falling close to 4% on the day. ramifications set to reverberate through rate sensitive stocks like financials and real estate. we will drill down on those

sectors state ahead, plus what's next for the consumer? the high-end has been hanging on, but is everything more vulnerable now in this rising rate environment for longer? this is options action. i'm courtney reagan in tonight for melissa lee. let's start with a look at today's big selloff. carter, it was quite a day here on wall street.i know it probably spooked a number of investors. what do you make of the action today? were you surprised in the sharpness of the selloff with just j powell just reiterating what they've previously been telling us has not been going away soon, the higher interest rate policy? >> you just touched on it by saying no bones about it and then reiterating it by saying it was a status quo week. oil has been going up and is up again this week. energy is the only sector up. it was up last week and interestingly, small caps are out performing. what is leading on the way down? the cues are down much more

than the s&p.the s&p was down much more than the russell 2000 and yields did not even move. 2.97 last friday and this friday, 3.04. really, it is just that. reiterating what we have known, and the market simply reacted. >> mike, what do you make of that market reaction? was it just knee-jerk reaction? how do you make sense of it? >> i think there can sometimes be lower liquidity as we approach the labor day weekend also i don't think that was too much at play here today. one of the things that surprises me is that everybody is surprised. to consider what we were hearing from mary daly, the san francisco fed president first quite some time. she had actually been saying listen to us. we are going to continue to ask, and i don't think most people would argue that she is

one of the most hawkish individuals at the fed, so how can they be surprised when powell comes out today and says i'm going to continue to do and continue to say what i've been saying all along. this is not alan greenspan fed speak where it is gobbledygook and we can try to figure it out. they are laying out what they're going to do with respect to the tenure rate, which is what i think carter was referring to. one of the natural things we would expect is if the fed does its job and manages to get inflation under control, and if it does have the necessary side effect, slowing effect on the economy, than actually what the 10 year rate debt, which is essentially nothing, is exactly what you would expect.>> carter made that point as well, for the tenure. if i think it through and push aside the numbers that i saw on the screen with the way that stocks were selling off and i think about what is really happening here, powell wants to get inflation under control.

it is at four year highs. it feels like a good thing to do. we all want this to be able to be a possibility. we just don't want the trade off of depressed economic growth and higher joblessness when we have this strong economic market, but should we all get comfortable with maybe a little bit of that pain? >> i think part of the pain you are also seeing in the stock market is in the retail sector, and that is coming from the expectation that higher interest rates on home equity loans and adjustable-rate mortgages and auto loans are things that are very painful on main street. that is why a day like today, the message was, to the consumer, you're going to endure more pain. for the markets, the interesting thing going into today, at least going into this week, the cross asset correlation. bonds, stocks, commodities have been extremely high. today, it was not. you saw the bond market decouple. you saw commodities decouple. we talked a bit about energy. the point is when the cost of

capital is zero, equities have a lot of leeway to run and you can buy growth out in the future. that is really what the take away is of today. that is why semis underperformed massively, but it is where the market has come from, and expectations. semiconductors rallied 30% in a month and half, or even a little bit less and have now pulled back 10%. that should not surprise people, especially on reinforcement of interest rate policy. >> let's start with financials. rising rate should be a good thing for the banks, but the slowing economy could hurt the sector. carter, do you think the regional banks bear the brunt of this impact? >> right. just as you said, if rates are moving in their favor, in principle, you want to be interest-rate sensitive. i don't think that is the case. i don't like regional banks. let's look at the kra. the first chart is yields, the big subject of the day.

10 year yields did not move. 2.97 this time a week ago. 3.04 right now. a head and shoulders top is what i see. the kr rates, that is the spider, regional bank, ats and the first chart you see here is the regional book chart. look at the same chart relative to the s&p. it is down and to the right. it has been underperforming since the day it was launched. it is not a good place to be over time. final two charts. the kre itself, just a minor trend. parallel lines. final chart, i think we go back to the timeline above which we broke in july. a good five, seven, 8% lower. >> thanks, carter. that's very interesting.

tim, what is your take on the regional bank fundamentals here? >> it is interesting, and carter showed that long-term chart. the short-term chart from april, they have outperformed the s&p almost 15%. they have outperformed money center banks almost 10%. i would tend to agree. my thesis would be we have not even gotten into credit dynamics. regional banks have actually been strong. look at pnc. they just talked about strong net income growth. they talked about net income and even where fee income was better than expected. that is going to be under a fair amount of pressure. i think tanks are better positioned on credit here, but what we have not heard anybody talk about is the credit impact of what a day like today actually could settle into. >> so then mike, what is the trade here for financials or regional banks? >> one of the things we have in

the options market right now is a result of what has been going on, elevated options premiums. whenever we are taking a look at how to structure trade around our directional thesis, in this case, that regionals are going lower, you're going to look for spreads. i was looking out to november. the 65 put spread was only about $1.85. i think by days end, kre had come in close to $64, but you can adjust those strikes depending on where things open up on monday. the idea here is that you want to mitigate some of the accelerated decay you're going to get when you have these elevated options premiums. >> carter, when it comes to rates, there is a lot of similarity between banks and real estate, right? what do you see? and matt that's right. again, they are heavy users of capital, and they are very sensitive to the cost of money, accordingly. i thought it would be good, if

we can, to look at weeds versus the kre. i have a comparative chart here, and what you'll see is that they are like railroad tracks. that is a five year chart .they are the same thing.just to make that point even firmer, look at the next chart including the s&p. it's the same set up. i don't like reads here in general, either. let's do a few ryr charts n their own. again, this is the read sect and what we see here as we falter. we broke below that moment in time which is the pre-covid high, and now we are at a rally, we are hitting her head again, so the final two charts, this is really up close and personal, just three months. no lines, no judgments, no annotations. final chart, this is what my ics, a minor head and shoulders

chart. we are right on the trend line. i think we break. >> mike, what is the trade line then on the iyr? >> if there are economic concerns than for those that have seen a little bit of a rebound, that is obviously risk area. residential rates obviously outperform because landlords of been able to increase the rents but the same timeline i spoke about applies here, as well, which is the reason that once again i'm looking at a vertical put spread. in this case, the october 88 put spread is when i was looking at. that's going to cost just a little quarter over the distance between the strikes, that is what we are typically looking for, 3 to 1 if you get the trade right and also trying to mitigate some of that decay that you might see in higher volatility environments like the one we are is currently in.

still to come, the high-end consumer was holding out but is that changing? plus more on jackson hole in today's fed interest market. stick around for tonight special, the fed factor at the top of the hour. in the meantime, we have more options action right after this. it's a thirteen-hour flight, that's not a weekend trip. fifteen minutes until we board. oh yeah, we gotta take off. you downloaded the td ameritrade mobile app so you can quickly check the markets? yeah, actually i'm taking one last look at my dashboard before we board. excellent. and you have thinkorswim mobile- -so i can finish analyzing the risk on this position. you two are all set. have a great flight. thanks. we'll see ya. ah, they're getting so smart. choose the app that fits your investing style.

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welcome back to options action, the overall retail sector getting hit by higher rate increases. lulu lemon shares down more than 23% this year and while there was a brief stick higher, there is likely no more trouble heading into earnings next thursday. mike has got the call to action across the board. we saw pain in the retail section, worry about the consumer psyche and spending. >> the first thing i would say about lulu lemon this is actually a name that we are long in our funds. it is a holy index name, index securities that i track that basically matches what we spend our money on in our household. the thing about lily's let's just talk about some of the good stuff 1st.lulu is a higher- end demographic with a heart more resilient customer base. they are probably more insensitive to economic pressures facing right now.

another thing. big is the company has become, it still has a lot of meaningful growth opportunities. they're expanding into footwear and men's apparel. if you take a look at a company that has had pretty decent top line growth and very good net income growth is should we be looking at companies like nike which is trading at about 28 times are companies like gap stores, which owns athlete and is a competing brand. we have earnings coming up on september 1st. whatever good things i might say about he company, i have to recognize that it presents a potential catalyst to push the stock lower and what is feeling like a pretty heavy market, and it is not the cheapest stock out there. the way i think one could trade it, i was looking at a one by two put spread. i was looking at september. the 310 260s, buying one 310 put, sewing two 360s against it,

that you are spending a little less than 10 bucks. this is due to take about 3% of the current stock price. if you take a look, you notice that 260 is considerably lower than the current stock price which happens to be very close to where the stock bottomed out recently and i am choosing a relatively close expiration because the catalyst i see on the immediate horizon is the earnings on the first of september. >> carter, what did lulu's charts tell you? >> it's struggling, let's say it that way. i've got three charts. the old data chart, well defined trend line. you will see it here and we are just now starting with raking trend. consider this. lulu was $2.17 a share on the financial crisis low. an incredible run to 400 point of this next chart, that is just over the past 15 years, that is

a pretty major head and shoulders top and then the here and now chart, the final chart, we are in the apex, meaning it's a standoff between bears and bulls, and you break one way or the other. i'm sure many people think it's going to break up. my thinking is it breaks down. >> tim, what is your take on lulu lemon, is there anything interesting here for you, be the evaluation, charts or catalyst ahead of earnings? >> i would address -- mike pointed out is it a gap multiple or nike multiple. i think he was saying the same. it's a nike multiple. in fact, their growing faster than nike, and if you look at the quarter we are expecting, somewhere around 25% growth and some gross margin hit, but again, a company like nike that has dtc, roughly 55% of the

revenue stream comes from stores. 45 from e-commerce. the e-commerce trend is strong. it is a company that north of 30 times on a multiple, this is where it has traded for the last couple of years in an environment that we are talking about that is emphasized on a day like today, the question is how should this multiple track and what premium are you willing to pay? to me, mid-20s on lulu's for you should be looking at 11 bucks a share in 2023. if you take that to 30 times, you're talking about 310 a share, around 25. ou 2. get to carter's level arnd50 next up, but stocks are catching tim's eye? more action right after this.

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powell's remarks. >> it's going to be huge. on that cnbc special, the fed factor, we are going to break down the nine minute speech that sent the dow lower by 1000 points. fed chair powell of course packing quite a punch in those nine minutes, telling the markets that fighting inflation is the number one priority, even if, and this is the key part, even if it hurts the economy. we are looking at every angle we possibly can with the unlimited amount of time we possibly do have 's, technology, the consumer asking the question that you want the answer to. is there opportunity amid this selloff, and is the bottom near or has it already been behind us? that is all coming at the top of the hour and of course, we are going to do that show. i'm sure the news with shepard smith is going to tackle it, as well. >> thank you so much, don.

we will be sure to be tuned in. another check on how stocks ended the day, the three indices deep in the red after fed chair powell warned of some pain ahead as the central bank continues to fight inflation. tim, you were pointing out more areas of the market that could be more sensitive right now. what are you looking at specifically? >> first of all, the defensive parts that are healthcare and energy are obvious here, but the high multiple tech stocks that have been under a lot of pressure for a year and a half, and that is an enormous bounce depending on which ones you are looking at, whether you're talking about zoom, or block or the things in the ar kk etf, to me the high market tech companies, especially the ones not making money, not only are they under pressure in terms of their core business, i look at the tv ad business they are exposed to. we heard from zoom in some of the disappointing numbers of all these companies, these are companies where we are pricing assets differently and putting a higher discount rate at these

companies are worthless explicitly. if you have a screen on your desk, which i do, these names were down almost two times the market today, and i think they're going to be under some pressure. they have had a great bounce. >> i think the critical thing to think about here -- there are two issues to think about. one is how you discount future cash flows. the other is the cost of capital . if you're dealing with growth companies not seen profits, not seen positive cash flow now, what does that mean? they need capital. of course go up, that is a bad recipe and combined that was declining economic growth, this is basically a slew of headwinds for this names. it is the reason they are under such pressure. when mac remember, one of the things and being adored and loved, and this was such an adored and loved area of the

market, they also have the most suffering on the way down. the beating they have had, and the balance they have attempted to mount is feeble. the balance is key. it is just not in line with other things. this is the last place you want to be in the event of market weakness. >> google to me as the best value in tech. in line with the market in your getting growth nor service 20%, days like today are for

investors need to be making their list. it is a scary time, but companies that are predictable and giving you the free cash flow that google gives are the ones i get excited about on a day like today. stick around. you're going to get the final call, coming up next. we will be right back.

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and just might change how you trade—forever. because once you experience thinkorswim® by td ameritrade ♪♪♪ there's no going back. it's now time for the final call. carter, let's start with you. >> interest rates are sensitive to what's going on. i wear, u.s. real estate, seller. >> markets are a function of sentiment and positioning as well as fundamentals. i just want to point out that we have never been this short on s&p futures. cash levels and hedge funds are over 6%, which is very high and sentiment is awful.

i think there is a lot of bad priced into this market, as well. >> we have had a dip. that means we could certainly get a rip. i expect we will see some, so if you're making your bearish bets, do so with what we have right now is a market and sell off mode. as you can see here, have gone all kinds of sideways with the dow losing about 5000 points overall. there is so much stuff to unpack with this market. it is crazy the amount of uncertainty there is right now.