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Stocks Kick Off Quarter With Rally

STOCKS KICK OF QUARTER WITH RALLY

Both the S&P and Dow rose on Wednesday, the start of the third quarter, as reassuring manufacturing data from China, Europe and the United States reinforced hopes that the world's economy is on the road to recovery.

A day after the benchmark S&P 500 wrapped up its best quarter in a decade, investors plowed new money into stocks, boosting growth-sensitive sectors like energy , industrials , technology , materials and consumer discretionaries.

But with the release of the all-important jobs number on Thursday, some caution prevailed, causing indexes to finish sharply off their highs.

How should you be positioned?

Strategy Session with the Fast Money Traders

I thought the economic data looked good, muses Tim Seymour. However, I expected the day to be stronger.

Oil has reversed two days in a row, reminds Guy Adami. It’s very disheartening and I think oil could drag the S&P with it.

As far as I’m concerned if oil can’t sustain itself above $70 the rally in equities is over, says Joe Terranova emphatically. I thought it was a very disappointing day.

I think there was a lot of program trading, adds Pete Najarian. I didn’t see any conviction in either direction. And I disagree with Joe. I think stocks can rally even if oil rolls all the way back to $60.

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TOPPING THE TAPE: TECH JUMPS INTO Q3

Over on the Nasdaq, the bulls took charge of the tech sector with Microsofthigher after new data showed that its Bing search engine gained market share and Intel making gains on positive comments from a Barclay's analyst.

I think at $17 and a quarter this is the high-end of the Intel trade, muses Guy Adami.

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TOPPING THE TAPE: CONSUMER SHARES STRONG

Consumer shares traded higher on Wednesday after General Mills forecast better-than-expected earnings for the current fiscal year, helped by new products and moderating commodity costs.

Don’t forget a lot of these names passed along higher commodities costs last year, reminds Tim Seymour, and now those costs have come down. Conceivably that makes them more profitable.

Also in the consumer space, Goldman Sachs upgraded Yum Brands to "buy" from "neutral" and said it had a more positive view on the prospects for profit growth at the company's international businesses.

I think Yum Brands looks ‘lovely’, says Guy Adami. I think it’s poised to take out $40.25.

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THE DIVIDEND TRADE

Pete Najarian has noticed that investors appear to be diving into staples and utilities in search of dividend yielding stocks.

The yields out of some of these names are attractive, he adds.

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THE AUTO TRADE

Shares of Ford closed higher after the automaker said its June U.S. sales fell only 10.7 percent from a year earlier, a far smaller drop than in previous months and a sign that auto sales may be recovering.

In fact Ford numbers were strong enough to pass Toyota as the number two car seller in the US.

Auto Sales In June

Chrysler (Down) 44.2%
GM (Down) 36.3%
Toyota (Down) 34.6%
Honda (Down) 32.4%
Nissan (Down) 23.1%
Ford (Down) 14.4%

What’s the trade?

CRT Capital put a $2 price target on Ford stock, reminds Guy Adami, but I don’t agree with it. They’re raising production and gaining marketshare. I think it could go to $8. And I’d also take a look at Borg Warner.

As you can imagine CNBC's Phil Lebau has a lot to say about Ford . Click here for more.

And in breaking news Lebau revealed that automotive parts supplier Lear Corp. says it is preparing to file for Chapter 11 bankruptcy protection and has lined up support from its creditors for a restructuring plan.

A company spokesman says it is working to line up more creditors for the plan but declined to say how many are on board. The spokesman also declined to say when or where the company would file for court protection.

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TRADE SCHOOL: AIG'S REVERSE SPLIT

AIG shares fell on Wednesday despite a 1-for-20 reverse stock split. This would mean if you own 1,000 shares you now own 50.

Just because the stock now has a higher price does not mean it’s worth more, reminds Tim Seymour.

To me something like this is a death knell, says Guy Adami. I’d run for the hills.

Take a look at how some other reverse stock splits played out.

Company Date 6 Months Later

SunMicrosystems Nov. 2007 -35%
AT&T Nov. 2002 -36%
Palm Oct. 2002 -25%
Razorfish July 2002 -62%

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OPTIONS ACTION: ELAN (ELN)

Pete Najarian has spotted unusual options action in Elan .

Speculation suggests that Novartis may be looking at this firm as a takeover target, he says.

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BULL MARKET OR BS?

With the S&P up 15% in the second quarter, can it possibly continue its run? For insights we turned to Joe Duran of United Capital Partners.

He told the desk he does not expect the markets to continue to rally and as a result investors need to be nimble. He suggests making three strategic moves.

They are:
Rebalance your portfolio after moves over 20%
Take money away from winners, reallocate to losers
Correctly identify undervalued asset classes

And he suggests the following plays:
-Be Underweight Stocks
-Get out of early recovery names like Emerging Markets, Basic Materials and Commodities
-Buy Consumer Discretionary SPDR (XLY) and Technology SPDR (XLK)






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Trader disclosure: On July 1st, 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 (AA), (AAPL), (BAC), (BX), (F), (NUE), (EEM); Seymour's Firm Owns (FCX), (YHOO); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU; Terranova Owns (XBI), (ABT), (MSFT), (UUP), (RIMM; Najarian Owns (F) Call Spread; Najarian Owns (GS) Call Spread; Najarian Owns (INTC) Call Spread; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (PALM) call Spread; Najarian Owns (YHOO) Call Spread; Najarian Owns (ELN) Calls

For Joe Duran
United Capital's Clients Own (XLK)
United Capital's Clients Owns (XLY)

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F
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INTC
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LEA
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MSFT
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NOVN
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SPDR SP HB
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SPDR NRG SEL
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SPDR IND SEL
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SPDR TEC SEL
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SPDR CS SEL
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SPDR UTL SEL
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SPDR CD SEL
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YUM
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