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Halftime Report: Are Bulls Back In The Saddle?

Monday, 18 May 2009 | 1:21 PM ET

Investors are again looking to the housing market for clues about how the economy is doing with both the Dow and S&P 500 trading significantly higher around lunchtime Monday.

Comments from home improvement giant Lowe's sent the bulls running early on Monday.

"In recent weeks, we have seen consumer confidence improve, housing turnover show signs of a bottom in certain markets and home prices slow their decline," Chief Executive Robert Niblock said in a statement.

Although Lowe's posted a 22 percent drop in its first-quarter earnings, the results still beat Wall Street's forecasts and the company raised its full-year profit forecast.

Steep losses on home values are one of the economy's biggest trouble spots that is hurting both banks and consumers.

How should you be trading?

Fast Money Halftime Report
Parsing the markets at mid-day, with Mike Khouw, Cantor Fitzgerald; Jared Levy, Peak6 Investments and CNBC's Melissa Lee.

Instant Insights from the Fast Money Traders

The S&P burst through the key 900 level, reminds Dan Fitzpatrick of StockMarketMentor.com. Now 930 is resistance, but I’m liking the action.

I think we’ve seen great price action when you consider what was absorbed by the market last week, reminds Joe Terranova. It was a very small correction. If 2003 is any indication the correction should be shallow.

As for Lowe’s earnings, they suggest resiliency in the home improvement sector, adds Terranova. I would expect to see rival Home Depot beat expectations when they report on Tuesday. I see $30 as a price target for HD.

But Home Depot is already up 7% ahead of earnings, counters Dan Fitzpatrick. It seems to me a lot of the news is already a factored in. If they surprise and the stock pops I would be a seller into the news.

Or I’d buy a put, adds Mike Khow of Cantor Fitzgerald.

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VIX HIT AN INTRADAY LOW OF 30.59 ON FRIDAY

Technical traders are keeping a close eye on the Vix . On Friday the fear index hit an intraday low of 30.59 on Friday.

Historically, when the VIX has crossed below and closed below 30, the S&P 500 has, on average, gone up 6% in the following 6 months.

In other words, the move in the Vix suggests options traders are betting that volatility is going to drop, explains Mike Khow and usually that accompanies higher prices in stocks. However I’m concerned that we’re not ahead of ourselves.

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FINANCIALS RIPPING ON GOLDMAN'S BAC 'CONVICTION BUY' CALL

Shares of Bank of America were among the biggest boosts to the Dow, after Goldman Sachs upgraded the beleaguered bank to "buy" from "neutral" and added it to their Americas Conviction buy list.

Goldman analysts said the bank's capital-raising is about 50 percent complete, following last week's $7.3 billion sale of China Construction Bank Corp shares to investors.

I think BAC stock is an opportunity at current levels, counsels Terranova.

I’d be careful of Bank of America, counters Jared Levy of Peak6 Investments. I would only approach that trade with a put spread.

And if you're looking for bullish options action, I’m seeing a lot of upside call buying and downside put selling in STT, adds Levy. That suggests to me the stock could go higher.

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TAKE YOUR POSITION: H-P FLAT AHEAD OF EARNINGS

Investors are bracing for big earnings news Tuesday from Hewlett-Packard after the market closes.

Dinesh Moorjani, an analyst with Broadpoint AmTech, says weak spending by large corporations on computer servers and storage, and softness in printing supplies — printer ink is a profit machine for HP — will drag down sales. But cost-cutting should cushion the blow to earnings.

How should you trade?

I’d buy a put and sell a call against it, counsels Jared Levy. These techs have run and I’d protect my investment.

> For more on Hewlett-Packard ahead of earnings click here

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FAST MONEY WORLD: INDIA SURGING

India's main stock index leapt more than 17 percent on Monday for its biggest single-day gain in almost two decades, after the capitalism party beat out communist rivals and won a decisive election victory that calmed fears of political uncertainty.

The rupee <INR=IN> soared more than 3 percent to five-month highs against the dollar, its best one-day rise in more than a decade, and bond yields fell as the win boosted hopes a strong coalition which would be able to push through economic reforms that would boost foreign investment.

Prime Minister Manmohan Singh's Congress-led coalition eyed possible new allies and needed just 10 seats for a parliamentary majority, rare in a country used to unwieldy coalitions.

A strong coalition, free of the pressures from its former communist partners, has boosted the prospect of reforms to encourage growth in Asia's third-largest economy, analysts said.

What’s the trade?

India is currently trading about 40% expensive to the rest of EM, explains Tim Seymour. I don’t think this is the day to jump into these stocks. India is a very exciting market and it’s an exciting day -- but not a day to dive in.

However, in the event a pullback, put India based Tata and Infosys on your buying list, counsels Seymour.


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Trader disclosure: On May 18th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AAPL), (BAC), (BX), (EEM), (FCX), (INFY), (PBR), (TTM); Macke Owns (AAPL), (WFC), (AGU), (GE), (SKF), (SDS); Finerman's Firm Owns (PBR), (RIG); Finerman's Firm Owns (BAC) Preferred; (WFC) Preferred; Finerman's Firm Is Short (BAC), (WFC); Najarian Owns (AMD) Calls; Najarian Owns (APC) CAll Spread; Najarian Owns (BBY) Put Spread; Najarian Owns (BP) Call Spread; Najarian Owns (BX) Calls; Najarian Owns (FAS) Call Spread; Najarian Owns (INTC) Calls; Najarian Owns (HPQ) Put Spread; Najarian Owns (MOS) Call Spread; Najarian OWns (XHB) Call Spread; Najarian Owns (XLB) Call Spread; Najarian Owns (XLU) Calls

CNBC.com with wires

  Price   Change %Change
DJIA
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S&P 500
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BAC
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HD
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HPQ
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INFY-IN
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LOW
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STT
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VIX
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