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Halftime Report: Does Sideways Action Signal Weakness Or Strength?

Traders nudged stocks higher midday with both the S&P 500 and Dow in the green as the bulls attempt to extend the huge three-week rally.

Stocks had wavered in early trading but positive sentiment prevailed after reports showed an uptick in consumer spending and pending home sales increased for the fifth month in a row.

But with the S&P above 1,000 how much is already priced in?

Instant Insights with the Fast Money traders

What I find impressive is that the S&P is holding the 1,000 level, explains Fast Money trader Pete Najarian. The fact that stocks are sideways and haven’t pulled back suggests to me that more people may want to come into the market.

There’s a feeling among professional investors that they can’t miss this rally, adds Brian Kelly of Kanundrum Research. No fund manager wants to tell his or her investors the market is up 40% but my fund is down. As a result, there are a lot of frustrated shorts. I think the lid may be off the pot and who knows how high the steam may rise.

Quite frankly I don’t take too much comfort in the market action, counters Patty Edwards of Storehouse. I’d play it safe with consumer staples .

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LAWMAKERS SAY SEC BAN ON FLASH TRADING IS "IMMINENT"

A U.S. Securities and Exchange Commission ban on flash trades is "imminent," a senior lawmaker said in a statement on Tuesday.

Democratic U.S. Senator Charles Schumer said SEC Chairman Mary Schapiro "personally assured him that the agency plans to ban the practice of so-called 'flash trading' that gives advance knowledge of stock orders to certain traders."

What must you know?

It’s important to differentiate between high-frequency trading and flash trading, explains Pete Najarian. Flashes are messages sent to a select group of people -- not everybody gets to see it.

I find it impressive that Goldman Sachs is still strong despite this news, adds Joe Terranova. In fact all the financials are strong and one would think they would be weak.


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TOPPING THE TAPE: CAT

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?

Unusual option activity suggests traders are betting Caterpillar has more upside, explains Pete Najarian.

I would not buy CAT up 4% on the day, explains strategic investor Dennis Gartman. But if you get a correction of $1 or more I’m a buyer. And what it says to me is that things are getting better around the world.


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SIGNS OF LIFE IN HOUSING?

Pending U.S. home sales rose in June for the fifth straight month, another encouraging sign of life for the embattled U.S. housing market, the National Association of Realtors reported Tuesday.

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.

What’s the trade?

I’d start looking at timber names like Plum Creek Timber, explains Brian Kelly.


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TRADE TO GO: GLOBAL INFRASTRUCTURE PLAY

Pete Najarian suggests putting Foster Wheeler on your radar. With shares trading in the low to mid $20’s I think there’s plenty of room to the upside, he says.


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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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