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Stocks Rally On Historic Fed Policy Shift

The Dow soared higher on Tuesday after the Federal Reserve slashed borrowing costs to a record low, even zero, and pledged more unconventional steps to fight the deepest recession in generations.

"The rate cut was definitely more than a lot of people were expecting and that's really helping the market here. But the big takeaway here is Bernanke's going back out into the market and trying to loosen things up in credit," says Jocelynn Drake, market analyst at Schaeffer's Investment Research.

"We've got a Fed that's willing to really go the distance for the market right now."

Also improving investor sentiment were better-than-expected quarterly earnings from electronics retailer Best Buy , which buoyed technology stocks.

Companies such as Microsoft Corp and Intel , which draw significant revenues from consumer demand for electronic products, were among the Nasdaq's top advancers.

Economic data earlier in the session continued to show effects of the recession, with U.S. consumer prices plunging at a record rate for a second straight month in November and housing starts tumbling to a record low.

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We knew they Fed was going to cut, says Jeff Macke. But we didn’t know the vim and vigor with which they would do it.

The move also provides relief because it reduces debts. However, I am concerned about inflation down the road, says Karen Finerman.

Making mortgage rates lower and buying asset backed debt makes things better for consumers, adds Tim Seymour.

The fact that we’re above 900 in the S&P suggests to me that we’re heading for more upside, says Guy Adami. We could be at 1100 by the end of this year.

I don’t think the market will get better fundamentally, but the resources are now in play because of the weaker dollar, adds Seymour.

Buying commodities stocks such as Arch Coalfor a trade makes sense to me, adds Macke.

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FINANCIALS SOAR AFTER FED ACTION

Banks led the market's charge higher, spurred both by the Fed's move to cap its target lending rate at a quarter percentage point and by a quarterly loss from Wall Street icon Goldman Sachsthat was not as gruesome as many feared.

I don’t know that the financials are cured by this rate cut, muses Karen Finerman. I wouldn’t be jumping on board.

The regional banks look interesting to me, adds Tim Seymour. They way I'd play it is with the Regional Banks HLDRs.

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HOMEBUILDERS RALLY HIGHER

Homebuilders rallied on Tuesday after the Fed said it will continue buying debt and mortgage backed securities to support the housing market. The belief is that mortgage rates are heading lower. Toll Brothers , Lennar , and D.R. Horton all closed higher.

Forget the homebuilders, says Jeff Macke. Just walk away from them. And I wouldn’t get short either.

With mortgage rates hitting historic lows, I think you’ll see inventory sucked out of the market, says Guy Adami. That's good for the homebuilders.

If you want to play housing check out emerging markets firms such as Homex , Gafisa and Empresas ICA , counsels Tim Seymour.

Two days from now we get another jobs number and I think it will be sobering, counters Karen Finerman. People who lose their jobs can't buy houses.

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FED MOVE LIFTS COMMODITY STOCKS

The U.S. dollar tumbled versus the euro and the yen on Tuesday after the Federal Reserve cut interest rates more than expected to a record low, further diminishing the appeal of the greenback.

I ran away from anything short and I sold some McDonald's , says Jeff Macke.

If you want a short play look at Acuity Brands , counsels Guy Adami. But there’s already huge short interest in this name.

If you’re looking for a short trade look at Agnico-Eagle Mines Limited, Gold Fields, and Rangold Resources . I think the gold miners have gone too far too fast, says Tim Seymour.




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Trader disclosure: On Dec. 16th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (DIS), (MCD); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman's Firm Owns (MSFT), (PM), (MO); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (USO); Seymour Owns (AAPL), (BAC), (EEM), (F), (GE), (INTC), (MER), (SSL); Seygem Asset Management Owns (CHL)

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Symbol
Price
 
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%Change
DJIA
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NASDAQ
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S&P 500
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ACI
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AEM
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AYI
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BBBY
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DHI
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GFSA
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GFI
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RRS
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GS
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HOMEX
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ICA
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INTC
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LEN
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MSFT
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TOL
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MCD
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MV BB
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