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Halftime Report: Does Thursday's Euphoria Signal Top?

The bulls are running on Wall Street with Dow back above 9,000 for the first time since the beginning of January. Quarterly results from bellwethers, including AT&T on Thursday and eBay a day earlier, ignited the rally, which has also driven the S&P 500 index to its highest level in 2009.

Sentiment was further buoyed after The National Association of Realtors said existing home sales had notched their third monthly rise in June with investors taking it as a sign the housing industry was slowly healing.

With so much euphoria in the market should you position for the next leg higher or the end of the line?

Instant Insights with the Fast Money Traders

I truly believe this is a breakout in the market, says Joe Terranova.

The options traders are saying the same thing as Joe, explains Brian Stutland of Stutland Equities. They’re definitely playing a breakout to the upside. All week I’ve seen upside call buying in the S&P options. I think the next stop could be 1000 on the S&P.

I’m concerned, counters OptionMonster Jon Najarian. When we get to big numbers like 9,000 on the Dow investors start to switch over and start protecting their gains. I’m seeing a higher volume of call selling and put buying.

I expect we'll soon see money start flowing into safer areas of the market, adds Patty Edwards of Storehouse. Yes we have a breakout but I don’t think we have the earnings power to support it. I expect to see a cold shock of reality follow this euphoria.

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NASDAQ SHOOTING FOR 12TH STRAIGHT GAIN

Over on the Nasdaq, bulls are hopeful that technology stocks will fuel another rally sending this tech heavy index to it’s 12th consecutive day of gains. If the Nasdaq, does in fact, close in positive territory, it will be the indexes longest winning streak since 1992.

Meanwhile, shares of Microsoft were among the Nasdaq's biggest boosters as investors pile in ahead of earnings.

Also market rumors that Microsoft and Yahoo are once again talking about an online advertising partnership generated investor interest. The renewed chatter largely stems from a report in All Things Digital that says the deal could happen within one week!

What’s the trade?

I expect to hear something today about a partnership, speculates Jon Najarian, when Microsoft announces earnings.

But the Microsoft story is more than Yahoo!, adds Joe Terranova. It’s about Bing and Windows 7.

As far as I’m concerned big tech is in play, adds Brian Stutland. They have great cash positions.

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THE RALLY: CONSUMER SHARES

Consumer shares moved higher after Kimberly-Clark, the maker of Huggies and Kleenex, posted a better-than-expected quarterly profit and raised its 2009 profit forecast.

Meanwhile, tobacco companies Reynolds American and Philip Morris posted higher-than expected quarterly earnings on Thursday and raised their 2009 forecasts, helped by price increases.

What’s the consumer trade?

I think Walmart is the play, says Patty Edwards. I think they’re the long-term winner from the economic weakness.

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THE RALLY: DRUGS

Investors are keeping a close eye on the healthcare sector after Wyeth reported a better-than-expected 13 percent increase in second-quarter profit on Thursday, helped by growing sales of its Enbrel arthritis drug and Prevnar vaccine against childhood infections.

Also, shares of Medarexsoared after Bristol-Myers agreed to pay $2.4 billion to acquire the company.

How should you play it?

Bristol-Myers lost out to Lilly in their bid to buy Imclone, reminds Pete Najarian. Big Pharma needs pipeline. I’d continue to watch the biotech space.

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MCDONALD’S FALLS

Around lunchtime McDonald’s was one of only a few Dow components trading lower. The fast food giant reported June same-store sales that only matched Wall Street's profit view.

The problem is that good isn't good enough for these guys," explains RBC Capital analyst Larry Miller, the company needs to show growth catalysts to lift its stock.

June sales at established restaurants rose 1.8 percent in the United States, 4.7 percent in Europe and 0.3 percent in the region that includes Asia and the Pacific, the Middle East and Africa.

Is the pullback a buying opportunity?

I think it is an opportunity, says Pete Najarian. They still have explosive growth potential in China.


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Trader disclosure: On July 23rd, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova Owns (MCD), (AXP), (AMZN), (MSFT), (QCOM), (SUN), (FTO), (SU), (GS), (APA), (GOOG), (IBM), (INTC), (XBI), (BNI); Finerman Owns (RIG); Finerman's Firm Owns (MSFT), (NOK), (PBR), (RIG), (WMT); Finerman's Firm Is Short (USO), (IJR), (IYR), (IWM), (MDY), (SPY); Finerman's Firm Owns (WFMI) Calls; Finerman's Firm And Finerman Own (BAC) Preferred Shares; Finerman's Firm And Finerman Own (WFC) Preferred Shares, Finerman's Firm Is Short (WFC); Grasso Owns (BAC), (BA), (COST), (CSCO), (V), (WMT), (CLF); Grasso's Company Owns (ABT), (MSFT), (GERN), (NYX), (XOM), (SDS); Grasso's Company Is Short (QQQQ);

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EBAY
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1767
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MSFT
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PM
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RAI
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T
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WMT
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YHOO
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