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Halftime Report: Friday’s Run Higher, The Beginning Of The End?

The bulls sent the stock market to new 2009 highs on Friday on a renewed belief that an economic recovery is well underway.

The S&P 500 and the Nasdaq both hit 10-month intraday highs, while the Dow industrials rose to their highest levels in nine months.

The bullish sentiment was sparked by data which showed sales of previously owned homes not only made gains in July, but rose at their fastest pace in nearly two years. Investors interpreted the results to mean housing was pulling out of a three-year slump.

Also comments from Federal Reserve Chairman Ben Bernanke supported the rally when he said the global economy appears to be recovering after a deep downturn.

How should you be playing Friday’s run higher?

Instant Insights from the Fast Money traders

Day after day I’m seeing clients coming in and buying dips, explains Steve Grasso of Stuart Frankel. I think the S&P is going to 1100. It seems to me that the market is betting we’re in a recovery.

I agree, adds Bill Strazzullo of Bell Curve. I see another leg to the upside taking us to 1100 or even 1150. In the short term I see 8%-12% to the upside. But then I’d get off the train.

I also think technicals are at work driving this rally, adds Jim Iurio of TJM.

I’m cautious, counters Greg Troccolli of Opalesque. 1 in 17 homes in Connecticut are either in default or 90 days behind in their mortgage payments, he explains. People are going to run through their savings and have trouble finding jobs. I think the repercussion is going to be a real weight on this market in the months ahead.

I agree with what you’re saying, adds Strazzulo. But that’s not the trade right now. Right now the trade is higher. What Greg is saying comes into play 2 to 3 months down the line.

I also think 3 months down the road we could see retracement, adds Steve Grasso. Don’t expect the market to go straight up from here.

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HOMEBUILDERS SOARING ON EXISTING HOME SALES

As you might expect the Homebuilders ETF shot higher on Friday after the National Association of realtors released data that showed sales of previously owned U.S. homes jumped 7.2% in July, the fastest sales pace in nearly two years.

What’s the trade?

I’d only trade the homebuilders on a short-term basis, counsels Steve Grasso. It’s okay to buy the dips and sell the pops but I wouldn’t invest for the long term. It’s still too muddy.

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BREAKOUT: OIL HITS 2009 HIGH THIS WEEK

Oil touched a high for this year above $74 a barrel on Friday with bulls driving the price higher on a belief the economy is improving and, as a result. demand for oil will increase.

Oil is on track for a 7.3 percent gain this week, and was last at this level on October 21, 2008 when it closed at $75.22 a barrel on its way down from a record peak above $147.

What must you know?

I think oil is a weak dollar play, muses Jim Iuorio. If the dollar settles stronger on Friday I think the oil move is over.

But crude is also buoyed by demand from China, India and other nations in Asia, counters Dennis Gartman. I think if oil breaks out above $75 oil could go to $80 very quickly.

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TOPPING THE TAPE: GAP

Shares of Gap appear to be breaking higher after the company reported a slightly stronger-than-expected quarterly profit on Thursday, citing strength from more full-priced sales, inventory controls and cost cutting.

The company behind the Gap, Old Navy and Banana Republic chains -- whose shares are up 39 percent since January -- has improved profit margins even as slumping sales pressured results.

Meanwhile, KeyBanc upgraded the stock to Buy from Hold and set their target price at $24 saying management is taking a significantly more aggressive posture in driving sales.

What’s the trade?

I like the RTH , says Bill Strazzullo. I think it has more upside. I can see it going into the mid-90’s.

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TRADE TO GO: CITIGROUP

Steve Grasso recommends putting Citi on your radar. He thinks it’s a short term buy because at $5 he expects the stock to attract retail investors. As a result he thinks it could be a short-squeeze play.

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CALL THE CLOSE

Bill Strazzullo: If we hit resistance on the S&P at 1025 use the weakness to buy.

Jim Iuorio: I think there’s too much money on the sidelines that can’t afford to miss the rally. I’m a buyer.

Greg Troccoli: I’d look to sell in the next 3 days.



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Trader disclosure: On Aug 21st, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Finerman's Firm Owns (BAC) Preferred Shares, Finerman Owns (BAC) Preferred Shares And (BAC); Finerman's Firm Owns (MSFT), (ARO), (WMT), (TGT); Finerman's Firm Is Short (USO); Finerman's Firm Owns (WFC) Preferred Shares And Is Short (WFC), Finerman Owns (WFC) Preferred Shares; Finerman's Firm Is Short (IYR), (IJR), (MDY), (IWM); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Grasso Owns (ASTM), (BAC), (C), (COST), (PRST), (V), (WMT), (FAZ), (AAPL); Terranova Owns (FCX), (BTU), (SU), (WFT), (AMZN), (MSFT); Terranova Is Short (CCL), (ESS)

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