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Stocks Fight Higher

Both the S&P and Dow edged higher on Tuesday after better-than-expected economic data further suggested a recovery was underway, but the gains were capped as investors took profits in tech, materials and energy , leaders in the recent rally.

Perhaps the biggest catalyst that held the S&P above 1000 came from the National Association of Realtors which said pending sales of existing homes rose at a faster-than-expected pace in June leading some to speculate that housing had seen the bottom.

For those that look at housing as the catalyst from which we have to emerge, this is a big positive, explains Marc Pado, U.S. market strategist at Cantor Fitzgerald.

What’s the word on the Street?

It’s a very good sign that the S&P has been able to hold this level, muses Pete Najarian. It seems investors were waiting for a dramatic pullback and it didn’t come.

To me money managers can’t be short, adds Joe Terranova. If Friday's employment numbers come in stronger than expected as other economic data has this week, the market will likely shoot higher. And money managers can’t risk not being in the market if that happens.

The one thing that's driving this market more than anything is the fear that as an investor, you're missing out on something big," echoes Angel Mata of Stifel Nicolaus.

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TOPPING THE TAPE: MONEY MANAGERS LEAD FINANCIALS

With economic data suggesting a slow but sustained recovery, shares financials surged led by State Street, BlackRock and other asset management firms.

What’s the trade?

I think the reason the financials did well on Tuesday was strength in the commercial real estate sector, explains Karen Finerman. There had been fear that more pain lay ahead for commercial real estate, but if that’s not the case then the asset managers stand to gain enormously.

Personally, I’m way less bearish on commercial real estate than I used to be, Finerman adds. I had been short Forest City but I covered when they were able to raise capital. I can’t be short when these REITs are able to raise so much money.

Also regional banks have great exposure to commercial real estate, reminds host Melissa Lee.

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TOPPING THE TAPE: CATERPILLAR

Shares of Caterpillar climbed on Tuesday after the world's largest maker of construction and mining equipment affirmed its 2009 forecast and said it expects profit of $8 to $10 per share within five years if the world economy recovers and $2.50 per share annually if the recession continues.

"We believe a recovery will come, and that Caterpillar will benefit from the world's need for the products we make," CEO Jim Owens told analysts at the company's Peoria, Ill., headquarters. His remarks were broadcast over the Internet.

"Looking forward, there is far too much uncertainty to know when the global economy will turn toward robust positive growth, but no matter what happens, Caterpillar has the people, products, dealer support and strategies to prosper," he said.

What’s the trade?

If the forecasts are accurate the stock may be cheap, muses Pete Najarian. And unusual option activity suggests some big investors are betting Caterpillar has more upside, he adds.

The mutual funds are also bullish on CAT, adds Steve Grasso.

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CHART OF THE DAY: HOMEBUILDERS

The XHB touched a new high for the year after the National Association of Realtors reported pending home sales rose in June for the fifth straight month.

For June, the Realtors group said its pending home sales index rose 3.6 percent to 94.6, from an upwardly revised reading of 91.3 in May. The last time there were five consecutive monthly gains was July 2003.

The results were far better than analysts expected and seem to confirm what more and more investors believe; the economy is stabilizing.

What’s the trade?

I think the bottom is in, speculates Karen Finerman. The Centex and Pulte merger was the watershed event. I’m long Centex.

I can tell you that my hedge fund clients feel the same way, adds Steve Grasso. They had been short but now sentiment has turned.

These stocks scare the devil out of me, counters Pete Najarian. In my opinion these stocks are used as trading vehicles and troubles in the sector are a long way from over.

For me the trade is to own the banks that own the residential loans on these homes, adds Joe Terranova.

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PROFIT TAKING: COMMODITIES LOWER

Oil snapped a 3-day winning streak and closed lower on Tuesday on expectations new data will show that supplies are rising. Weakness in the front month contract dragged down Exxon , Chevron and the energy sector overall.

What’s the trade?

It seems that too many traders were short and now they’re chasing oil, says Joe Terranova. I think the market challenges $73.38.

My clients are also long energy, reveals Steve Grasso and they’re shorting solar.

Meanwhile, the prices of commodity-related stocks fell at an even faster pace than commodities themselves.

What’s the trade?

If you believe in housing, you’ve got to love copper , says Pete Najarian. Giddyup! And I think Freeport is very cheap.

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PROFIT TAKING: TRADERS SELL TECH

Investors took profits in Apple , Microsoft and other tech titans ahead of Cisco’s much watched earnings report on Wednesday. Cisco, the maker of routers and networking gear, is widely considered a barometer for corporate tech spending.

What’s the tech trade?

It seems to me that tech is slowing down right now, explains Joe Terranova. The only stock that bucked the tape was RIM.

Personally, I think tech has paused, counters Pete Najarian. But I wouldn’t say it’s slowed down. Long term I think technology still works. I love Microsoft .

I expect the pause in technology to be broken on Wednesday after Cisco provides guidance, adds Karen Finerman.

In fact investors look at Cisco CEO John Chambers are a market mover, adds Steve Grasso.

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AFTER HOURS ACTION: WHOLE FOODS

Whole Foods on Tuesday posted third quarter earnings that beat Wall Street's expectations, as sales rose, and the seller of organic and gourmet food products raised its full-year earnings forecast.

Shares shot up more than 10 percent in extended trade, after closing at $24.82 on the Nasdaq.

I think this tells us something about the consumer, says Pete Najarian. People are shopping at Whole Foods despite the fact it’s a little pricey.

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PIT BULL: THE DOLLAR

The U.S. dollar gained modestly on Tuesday, but continued to hover near its 2009 low against a basket of stocks.

Upbeat manufacturing data out of China pushed the dollar down sharply on Monday, giving investors confidence to buy foreign currencies and riskier assets such as stocks.

What does the dollar’s downfall mean for equities and how should you trade it.

Find out now. Watch the video!




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Trader disclosure: On Aug 4th, 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 (MSFT), (RIMM), (JPM), (MS), (ABT), (MCD), (AMZN); Terranova Works For (VRTS); Terranova Is Short (TM), (WFC), (WYNN), (F); Finerman Owns (RIG); Finerman's Firm Owns (MSFT), (NOK), (PBR), (RIG), (PDE), (TBT), (WMT); Finerman's Firm And Finerman Own (BAC) Preferred Shares; Finerman's Firm And Finerman Own (WFC) Preferred Shares; Finermnan's Firm Is Long (WFMI) Puts; Finerman's Firm Is Short (WFC), (USO), (IJR), (IYR), (IWM), (MDY), (SPY); Finerman's Firm Owns (CTX); Grasso Owns (BAC), (BA), (COST), (CSCO), (FAZ), (OXY), (V), (WMT), (XLF); Grasso's Company Owns (ABT), (GERN), (MSFT), (NWS.a), (NYX), (PDE), (RDC), (ROK), (XOM), (SDS); Grasso's Company is Short (QQQQ), (CL); Grasso Owns (CSCO); Najarian Owns (AET); Najarian Owns (BX) Call Spread; Najarian Owns (BUCY) & (BUCY) Call Spread; Najarian Owns (INTC) Call Spread; Najarian Owns (JPM) & (JPM) Call Spread; Najarian Owns (MS) & Short (MS) Calls ; Najarian Owns (MSFT) & Short (MSFT) Calls; Najarian Owns (PALM) Call Spread; Najarian Owns (V) & Short (V) Calls; Najarian Owns (YHOO) Call Spread; Najarian Owns (TCK) Calls

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