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Halftime Report: Did We Go Too Far Too Fast?

DID WE GO TOO FAR, TOO FAST?

The S&P 500 slipped down into negative territory by midday Monday driven by heavy profit taking in the financial services sector. Investors are clearly taking gains “off the table” after the sector’s 6% run up last week.

Investors may also be cautious right now, due to the large common stock offerings looming in the days ahead as banks issue more stock to repay government bailout funds.

"Banks are going to need to raise capital, that's weighing on the market. We climbed a wall of worry, bought the rumor, and now we're selling the news," says Marc Pado, market strategist at Cantor Fitzgerald in San Francisco.

"Sometimes you just get a little reminder that as much as we do believe that the bottom is in on the economy and market, it's not always straight-up smooth sailing."

How should you be trading?

Instant Insights from the Fast Money Crew

Monday is all about the financials . We’re losing the financials in the rally; that’s obvious, muses Fast Money trader Joe Terranova. It makes sense that we have a little correction in the marketplace, let’s hope it’s minor.

If you’re trading financials I’d keep an eye on JP Morgan and Goldman Sachs. Those two stocks are probably the bellwethers for the entire sector. If they underperform during the course of the day that generally means the financials will roll over, and that’s what we’re seeing on Monday, says Terranova.

The buzz in the market suggests that traders want to see a pullback, adds Jared Levy of Peak6 Investments. We need a little retracement but I think it will be moderate. 800 could be the new 700 on the S&P.

I think in the short term the March 6th rally is still in tact, adds Bill Strazzulo of Bell Curve Trading. That’s the key. The whole world rallied in the beginning of March. Right now the US is probably the strongest of the major markets. We’ll probably get a little pullback but if you can buy around the 900 level you want to do that. I think on the upside you can get to 950 or 970.

Meanwhile, investors are also keeping an eye on retailers ahead of Wal-Mart earnings, explains Mike Khow of Cantor Fitzgerald. Option action in the RTH suggests to me that investors are taking profits on bearish bets they made last week.

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THE OBAMA TRADE: OBAMA'S HEALTH CARE REFORM

Overhauling health care might be good for business. That’s according to the White House which invited several large trade groups, including the AMA to Washington for a discussion about reducing the cost of health care.

The goal is to reduce costs by 1.5% annually, with the savings initially achieved through steps such as streamlining paperwork and changing the way hospitals deliver and bill for services to patients.

According to the Obama team, the move could save $2 trillion over 10 years.

What’s the trade?

When Obama started talking about health care the entire HMO space really pulled back, reminds Mike Khow. Some of these companies now present attractive opportunities -- if you hold the stock, sell the strangles around them.

Or you could be a buyer of the PPH if it pulls back to $50-$51 or a seller around $59 or $60 adds Strazzulo. And in the BBH the critical resistance level is $88-$91. You need to clear that hurdle before you see any major upside.

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TOPPING THE TAPE: TECH

It looks like last week’s laggard is Monday’s leader, as of mid-day technology was the only S&P sector in the green with investors scooping up shares of big-cap software makers such as Oracle.

What’s the trade?

I’m looking at IBM, counsels Pete Najarian. I think it’s attractive under $100. And I like the price action in Intel.

Another way to play it is with the SMH, adds Bill Strazzulo . There’s probably upside there to $22.50 - $23.


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