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Halftime Report: Trading Financials In The Wake Of SEC Charges

On Monday, investors were keeping a close eye on the financials after hearing that the SEC is suing Bank of America; alleging materially false, misleading statements in connection with its acquisition of Merrill Lynch.

The charges raise further questions about the future of CEO Ken Lewis, who has come under extreme scrutiny in recent months for his role in the acquistion.

And in another twist, the Wall Street Journal is reporting that Sally Krawcheck, the former CFO of Citigroup, is taking a job at Bank of America, running the global wealth and investment unit.

How do you play financials amid all the uncertainty?

Be careful of Bank of America, counsels Mike Gurka of Empower Global Funds. News likes this involving big government is like standing in front of a train. It can flatten you.

What it says to me is that there’s an upside cap to Bank of America share price, muses Brian Stutland of Stutland Equities.

If the Bank of America news doesn’t drag down stocks, it’s a great indication of the fundamental strength of the rally, muses Fast Money trader Joe Terranova. And I’d play it by owning JPMorgan just because it’s a best of breed play.

Personally, I don’t think Ken Lewis’ tenure at Bank of America is the reason why anyone invests in the stock, muses Zach Karabell of RiverTwice. And I don’t think the news has any long-term impact on shares.

For the latest on this developing story, click here.

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S&P BREAKS 1000

Meanwhile, the bulls pushed the S&P 500 above the psychologically important 1,000 level on Monday – to its highest level since early November -- after better-than-expected reports on manufacturing and housing gave investors two new reasons to feel optimistic.

Safe-haven assets like Treasurys and the U.S. dollar fell, while oil and other commodities prices rose.

How should you be positioned?

I’ve spotted unusual options activity which suggests big investors are betting the market moves another 2%-3% higher, explains Brian Stutland. Personally, I think it means the S&P goes to 1050.

It seems to me that market is returning to growth, muses Joe Terranova. I’d play it from that perspective.


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OIL CLIMBS PAST $71

Oil rose more than $2 a barrel to hit a one-month high near $72 on Monday as positive manufacturing data in the U.S. and China raised optimism for an economic recovery that could bolster energy demand.

The move was also triggered by a weaker dollar, which slid to its lowest point this year on Monday against a basket of currencies amid increased risk appetite.

What’s the trade?

I don’t think China is driving oil demand, explains Zach Karabell. With that said I think you buy what China buys and that’s commodities and resources.

Also, the fall is a seasonally weak period for the dollar, explains Joe Terranova. I think that’s bullish for commodities and resources longer-term.


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FORD JUMPING ON SALES DATA

Shares of Ford were trading higher on Monday after the automaker said sales rose 2.3% in July, its first year-over-year monthly increase since November 2007, supported by the U.S. government "Cash for Clunkers" program.

What’s the trade?

It seems to me like Ford is breaking out to the upside, counsels Brian Stutland. I’d play it with the $7 to $10 calls.

I don’t agree, counters Joe Terranova. It’s time to move to the sidelines in Ford. It’s a crowded trade. Reload at lower levels.


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THE CHINA GROWTH ENGINE

Hong Kong and China shares rose for a third day on Monday as positive factory activity data for July prompted strong buying in the power, metal and oil sectors.

CLSA's China Purchasing Managers' Index (PMI), a key gauge of the country's manufacturing sector, rose to a one-year high in July as resurgent domestic demand spurred manufacturing activity in the world's third-largest economy. The CLSA data dovetailed with that of China's official PMI released on Saturday

Meanwhile, investors appeared to shrug off worries about a possible clampdown on bank lending or even a tightening of monetary policy, which triggered last Wednesday's sell-off.

What’s the trade?

The demand is being driven by the domestic economy, explains Tim Seymour and the trickle to commodities should be profound. I think we’re on the edge of a commodities bull market. To play it, I'd look at aluminum, copper and steel, he says.


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Trader disclosure: On Aug 3rd, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders;

Stutland's Firm OWns (SPX)
Stutland's Firm Is Short (VIX)
Stutland is Short (UUP)
Stutland Is Short (SPY)
Seymour Owns (FXI)

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