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Halftime Report: Trading The Sideways Market

On Tuesday the S&P 500 staged a modest rebound following the massive sell off one day earlier with tech and financials leading the way. However broad gains were held in check by a report showing construction of new homes fell more than expected in July.

Are were in a sideways market?

A capitulation selloff would have been bullish, muses Brian Kelly of Kanundrum but we didn’t get that. I'm watching the action at the end of the day. Over the last several weeks there have been run ups toward the end of the session, but on Monday that didn’t happen. I think that's your 'tell.'

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RETAIL SHARES CLIMBING

Retailers were lifted higher on Tuesday by better-than-expected results from some of the nation’s largest stores. Home Depot , the biggest U.S. home improvement chain, beat estimates and raised its outlook, while profit at Target, the No. 2 U.S. retailer, came in better than Wall Street's consensus forecast.

Also TJX Cos posted higher quarterly profit on Tuesday, as consumers sought out its stores to buy fashion brands at low prices.

What’s the trade?

Home Depot’s numbers were strong but the strength was from cost cutting and not growth, explains Patty Edwards of Storehouse. I can’t get that excited. Same thing is true for Target.

I’m seeing call buying into September in this space, explains Brian Stutland of Stutland Equities. That could suggest that investors are betting retailers continue to move higher.

I’m not a big fan of retail stocks, counters Brian Kelly. They may go up with the market but consumers are saving not spending and as a result I don’t think we see massive growth at these companies.

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CREDIT CARD COS. RISING

American Express traded higher after data suggested the rate of U.S. credit card defaults showed signs of stabilizing last month, an indication that American consumers may not be in as bad shape as feared despite job losses and the housing slump.

In a regulatory filing on Monday Bank of America said credit card default rates dropped in July after several months of a steep deterioration. JPMorgan , Citigroup , and Discover Financial Services also said bad-loan levels fell.

What’s the trade?

In the space, I like Visa and Mastercard most, says Fast Money trader Pete Najarian. Discover probably offers the most bang for the buck but it’s a higher risk trade.

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BANKS REBOUNDING

Goldman Sachs led the financial services sector higher after an analyst upgraded the firm saying it remains well-positioned to take advantage of improving market conditions in the coming quarters.

Pali Capital analyst Douglas Sipkin raised his rating on the New York-based bank to "Buy" from "Neutral." He also increased his 2009 and 2010 earnings estimates for Goldman and raised his price target on the stock to $210.

What’s the trade?

I’m still bullish on financials but I think Goldman is a little lofty at these levels, counsels Brian Stutland.

I’d play banks with the regionals , adds Brian Kelly. Considering the Fed has put so much money into the big financials, I don’t think they let regionals just blow-up. And as far as I’m concerned they’re already priced for Armageddon.


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TAKE YOUR POSITION: H-P

Hewlett-Packard reports its fiscal third-quarter earnings Tuesday after the market closes. Investors seem enthusiastic about HP CEO Mark Hurd's aggressive cost-cutting and forays into different markets. The stock has recovered from the drubbing it and many of its rivals took in the worst of the financial crisis last year.

What should you expect?

Analyst Dinesh Moorjani with Broadpoint.AmTech wrote in a recent note to clients that PC demand probably came in stronger than expected but warned that deteriorating business conditions in Europe likely hurt HP's overall results. Moorjani believes that sales in one slumping area — HP's printing division, which includes highly profitable printer ink — should rebound by the end of the year.

Analyst Robert Cihra with Caris & Company wrote to clients that he sees the "tone getting more positive as (year-over-year) erosion troughs" for HP, though cautioned that he believes there will be continued weakness in HP's printing business and overall sales recovery.

What’s the trade?

Options traders are looking for a 4% move on the stock through expiration, explains Brian Stutland. The degree of put buying suggests there could be profit taking. However I also see investors saying I want to own this stock around $40.


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OIL TRYING TO REBOUND?

Oil rose above $67 a barrel on Tuesday, tracking gains on global stock markets. The move comes ahead of the release of weekly data from the Energy Information Agency with analysts expecting more signs of weak U.S. demand.

What’s the trade?

It seems to me consumers are used to oil around $68 - $72. But, I think it has trouble around $75.


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Trader disclosure: On Aug. 18th, 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 Owns (BAC)
Stutland Owns (SPY)
Edwards Owns (WMT)

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