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Halftime Report: Why Isn't Market Correcting?

The bulls pushed stocks to 10-month highs on Monday, extending last week's gains as investors became even more optimistic that the recession had ended.

Positive sentiment turned widespread after The Federal Reserve Bank of Chicago said its National Activity Index was minus 0.74 in July, up from minus 1.82 in June, as production-related indicators turned positive for the first time since October.

The data built on upbeat comments last week from Federal Reserve chief Ben Bernanke , who said the global economy appears to be recovering after a deep downturn.

What should you expect, next?

Instant Insights with the Fast Money Traders

I don’t think the rally is going away any time soon, muses Fast Money trader Joe Terranova. It’s being led by commodities and the falling dollar and I don't see that changing.

Patterns in the chart of the S&P worry me, counters Jared Levy of Peak6. I think the market could be a little overbought and we could see a correction.

In years gone by we would have expected a pullback after such a strong move higher, but I don’t see any reason that the market can’t climb in an atypical fashion now because events of the past 18 months have been anything but typical, adds Zach Karabell of RiverTwice.

It seems that most investors have been waiting for a pullback, says Mike Khouw of Cantor Fitzgerald. That might be the reason we don’t see one.

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TOPPING THE TAPE: CREDIT CARDS LEADING FINANCIALS

Bank stocks led the way higher on Monday with shares of American Express and Capital One boosting the sector after Barclays Capital upgraded the credit card issuers to "overweight.

Further supporting financial stocks, Citigroup said sector stocks were all trading "well below" their mean relative performance levels, "suggesting opportunity remains in place even after the impressive rally experienced over the past five months."

What’s the trade?

In the space I’d move away from the transaction-based names, counsels Joe Terranova; that’s Visa and Mastercard . I go to the sidelines in those names.

In the space I’m seeing bearish options activity in JPMorgan, muses Jared Levy.

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TOPPING THE TAPE: OIL & COMMODITY STOCKS

Shares of energy companies also rose as crude oil futures hit a fresh 10-month high of $74.81 per barrel, supported by expectations that an economic recovery would spark demand for oil.

What’s the trade?

I fully expect oil to go to $75, says Joe Terranova. But it begs the question – does higher oil choke off the recovery?

The link between oil and consumer spending has been endlessly debated but the correlations have never panned out, adds Zach Karabell.

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OPTIONS ACTION: HEALTH CARE COMPANIES

Options activity suggests investors think shares of UnitedHealth could soon move higher, likely due to a growing belief that the Obama administration has backed away from a public option to compete with private HMOs.

What’s the trade?

It seems options traders are bullish on both UnitedHealth and Wellpoint , explains Mike Khouw.

I’d be careful in this space unless you're a very short-term trader, counters Zach Karabell. I think these stocks move on headlines and the situation remains uncertain and unpredictable.

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TAKE YOUR POSITION: BONDS

U.S. Treasury debt prices mostly eased on Monday as higher stocks eroded the safe-haven appeal of government debt and as investors worried whether new debt this week would be welcomed by buyers.

The Treasury is set to auction $109 billion of two-, five- and seven-year notes this week amid investor concern that the global appetite for massive doses of U.S. securities may be waning.

What’s the trade?

If foreign central bankers go on vacation this week we’re in trouble, muses Joe Terranova.


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‘CLUNKERS’ CROSSES FINISH LINE

Over the weekend, car dealers across the country watched their lots grow empty as crowds rushed to trade in gas guzzlers after the government said that the $3 billion rebate program would end at 8 p.m. ET Monday, two weeks earlier than expected.

Transportation Secretary Ray LaHood, speaking to reporters in Norristown, Pa., called the program an unprecedented success and a boon for car dealers, automakers, scrap yards and financial institutions.

"Once the program ends at 8 o'clock there will be 700,000 to 800,000 cars that have been sold, most of them fuel efficient," replacing gas-guzzling cars and trucks, LaHood said.

Transportation officials said as of Monday, dealers had submitted 625,000 vouchers totaling $2.58 billion.

With so many new cars on the road, what’s the trade?

Ford probably still has some legs, says Pete Najarian, but that’s a long-term trade. In the near term, I’d go with a downstream trade such as at Borg-Warner .

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TRADE TO GO: HOP ON THE RAILS

Fast Money Trader Joe Terranova thinks the rails are a buy. He likes Union Pacific and Burlington Northern as beneficiaries of the recovery.

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CALL THE CLOSE

Joe Terranova: I’m a buyer of oil and a seller of indexes.

Mike Khouw: It’s a coin flip.

Zachary Karabell: I’ve been playing the S&P both long and short.

Jared Levy: I’m a seller into the close though long-term I’m bullish.


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Trader disclosure: On Aug 24th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (BUCY) & Short (BUCY) Calls; Najarian Owns (C) Calls; Najarian Owns (FCX), Is Short (FCX) Calls, Owns (FCX) Puts; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (PALM) Calls; Najarian Owns (V) & Short (V) Calls; Najarian Owns (YHOO) Call Spread; Terranova Owns (AMZN), (MSFT), (WFT), (BTU), (MA), (SHLD); Terranova Is Short (KBH); Terranova Works For (VRTS); J. Najarian Owns (AMD), (AAPL), (BX), (DRY), (LDK), (NTRS), (NUE), (FRE), (FNM), (NVLS); J. Najarian Owns (BAC) Preferred; Cortes Owns (SPX); Cortes Is Short Nasdaq 100; Cortes Owns (GS)

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