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Halftime Report: Can Bullish Momentum Carry Into August?

DOW’S BEST JULY SINCE ’89

The Dow edged higher on Friday after the government said the economy contracted at a slower-than-expected pace in the second quarter, which investors took as a sign the recession is easing.

If the market can hold onto its gains this will be the best July in 20 years for the Dow and the best month since October 2002.

Best Performing Sectors In July

Materials Up 13.4%
Technology Up 10.1%
Consumer Discretionary Up 9.7%
Industrials Up 9.4%

Can the momentum carry into August?

The charts suggest to me that the March rally is still in tact, explains Bill Strazzullo of Bell Curve. I expect more upside with the S&P climbing another 10% to 1100. But don’t rush in. Wait for the S&P to pullback to 950 and then dive in.

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RECESSION STRANGLEHOLD EASING?

Bullish investors received another shot in the arm on Friday after new data showed the U.S. economy contracted at a slower-than-expected pace in the second quarter.

However, that’s not to say there wasn’t any bearish sentiment in the numbers. A sharp drop in consumer spending fanned fears that recovery would be sluggish. And with the latest decline, U.S. GDP has fallen for four straight quarters for the first time since government records started in 1947.

Is there a trade?

I love McDonald’s , says Steve Grasso of Stuart Frankel. And look at Target and Walmart, he adds. As long as the economy doesn’t rebound they are still in play.

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TAKE YOUR POSITION: CISCO

Investors are eager to hear from Cisco next week. The maker of routers and computer hardware is widely considered a barometer for corporate tech spending.

According to the Wall Street Journal, “Cisco Systems is expected to post an 18% drop in sales…but investors hope that the networking gear giant's results will offer signs that the deep slump is coming to an end.”

What's the play?

The only problem with this stock is the run it’s had, says Fast Money trader Guy Adami. If you think the market is going to 1100 you can own it. But if you don’t, then I’d take some off the table. For me around $19.50 it’s attractive.

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DOLLAR WEAKNESS

The dollar fell across the board on Friday, pressured by month-end flows and after data showed business activity in the U.S. Midwest in July improved more than expected.

That Institute for Supply Management-Chicago report offset earlier worries from U.S. gross domestic product data that showed a renewed decline in consumer spending in the second quarter.

"Overall, sentiment for the buck is negative," says Jacob Oubina, currency strategist at Forex.com.

The dollar tends to fall on improving economic data as its safe-haven appeal is dulled by an increase in risk appetite.

What’s the trade?

The greenback hasn’t seen this kind of move in a while, explains Steve Grasso of Stuart Frankel. It could signal a spike in oil.

I’m not sure it signals a spike in oil, counters Jim Iurio of TJM. The price of oil also involves demand.

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OIL PUSHING HIGHER

U.S. crude futures bounced up more than $1 in volatile trading on Friday, after U.S. GDP data for the second quarter showed the economy contracted less than expected. The data renewed interest in higher risk assets, which turned the dollar weaker, and lifted oil.

What’s the way to play?

I’d look at the OIH , counsels Bill Strazzullo. The chart looks like it’s transitioning higher, he explains. I see good upside.

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CASH FOR CLUNKERS LIVES ON

Congress is moving quickly to add more money to a cash-for-clunkers program aimed at spurring U.S. automobile sales after it ran through $1 billion in a matter of days due to an unexpected avalanche of business.

Speaking to reporters, Michigan Senator Debbie Stabenow and fellow Democrat Carl Levin said a vote could come as early as Friday in the House of Representatives to extend the popular program. Time is of the essence; the House is scheduled to recess later in the day for its annual August vacation.

Is there a play here?

It seems to me the news is already baked into auto stocks, says Steve Grasso. With Ford up so much already, I’d be a seller.

I’m still a believer in Ford, says Brian Stutland.

No, I think investors are too exuberant about Ford, counters Jim Iurio. I’m a seller of Ford and a buyer of Honda.

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CALL THE CLOSE

Bill Strazzullo: I’d take profits with the S&P around 1,000 but then get back in on a pullback.

Jim Iuorio: I’m a seller. The dollar is weaker but the stock market doesn’t seem to care. That seems off kilter.

Steve Grasso: I’m a buyer. I see fund money coming back into the market.

Brian Stutland: I would be a small buyer.


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Trader disclosure: On July 31st, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Terranova Owns (AMZN), (MSFT), (MCD); Terranova Is Short (TM)

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