Halftime Report: Is Rally Bet On Strength Or Panic Buying?

Two pieces of strong economic data and word that the White House wasn’t looking for any major changes at the Fed sent the Dow , and S&P 500 up to 10-month highs on Tuesday.

New data showed consumer confidence increased more than expected in August while the S&P/Case-Shiller home price index rose in June for a second straight month; investors took both pieces of data to mean the economy was improving.

The rally found further support after President Obama nominated Ben Bernanke for a second term as Fed chairman, saying he "approached a financial system on the verge of collapse with calm and wisdom." The decision removes an element of uncertainty which traders widely consider bullish.

But is Tuesday's rally a bet on economic strength or panic buying?

Instant Insights with the Fast Money traders

It seems to me there’s been a lot of chasing in this market, says Danielle Hughes of Divine Capital. Tuesday’s rally could be a bit of panic buying and I wouldn’t be surprised to see a pullback.

The market has shown some great action, muses Christopher Zook of CAZ. But there does seem to be a lot of cash on the sidelines that's chasing performance.

My concern is that the consumer confidence data also showed that people were only slightly more upbeat about their earnings expectations, adds Brian Kelly of Kanundrum Research. As long as earnings continue to weigh heavily on consumers' minds, spending is likely to remain constrained and that's bearish.

With the run we've had, I’d take profits, counsels Fast Money trader Pete Najarian.

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OPTIONS ACTION: HOMEBUILDERS

Pete Najarian has spotted unusual options activity in the Homebuilders ETF.

Although the ETF is touching on multi-month highs, the volume of upside call buying suggests to Najarian it could go even higher.

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RETAILERS SOARING

Investors sent Walmart, Macy’s and other retailers higher after new data showed consumer confidence rose more than expected.

Specifically, the Conference Board says its Consumer Confidence index rose to 54.1 this month from 47.4 in July, far above the 47.5 level that analysts had predicted.

"Consumers were more upbeat in their short-term outlook for both the economy and the job market in August, but only slightly more upbeat in their income expectations," Lynn Franco, the group's director of research, said in a statement.

Consumer confidence is a proxy on future consumer spending, which accounts for 70 percent of the U.S. economy.

What’s the trade?

I think we’re getting into the extra innings of the retail rally, muses Danielle Hughes. I expect to see a pullback – a significant pullback, maybe next quarter.

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2-YR. BOND AUCTION

U.S. Treasury debt prices fell on Tuesday ahead of the $42 billion auction of new two-year notes , part of this week's $109 billion in long-dated debt supply.

"Everything seems to be looking very bearish for bonds," muses Rudy Narvas, senior analyst at 4Cast Ltd. in New York.

"(However) the longer term backdrop for Treasuries remains favorable, and that's protecting the downside for bonds," adds Jessica Hoversen, fixed income market analyst at MF Global Research in Chicago.

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GOLDMAN IN THE CROSSHAIRS

As we told you yesterday, Goldman Sachs is struggling with an image that may become permanently tarnished.

The latest development in what’s become a string of public relations nightmares was first revealed by the Wall Street Journal on Monday, which said Goldman sometimes shared trading tips with top clients before making the information widely available to all their customers.

And now the Wall Street Journal says, securities regulators are asking for more information about these developments, presumably to determine if Goldman is responsible for any serious misdoings.

What must you know?

Give me a break, exclaims Guy Adami – a former Goldman Guy. Just lay off these guys. People hate them the way sports fans hate the Yankees.

If you're looking for a trade, I think valuations are a little rich right now, he adds.

I’d also wait for a pullback, adds Christopher Zook, but on a dip I think it’s a great company.

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TRADE TO GO: INTEL

Pete Najarian suggests putting Intel on your radar. I love their balance sheet, he says, and when I look at their valuations and the prospects they have for growth with increasing purchases of netbooks, mobile devices and more I think the stock has plenty of room to run.

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CALL THE CLOSE

Pete Najarian: With the run we've had, I’d take profits.
Christopher Zook: I’d ride this rally a little longer but we’re in the 8^th inning of a 9 inning game.
Danielle Hughes: I’m a seller.
Brian Kelly: I’m a buyer.

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Trader disclosure: On Aug. 25th, 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 (AMZN), (MSFT); Terranova Owns (CCL) Puts; Terranova Is Short (SHLD), (EES); Adami Owns (AGU), (C), (GS), (INTC), (BTU), (MSFT), (NUE); Cortes Owns (SPX), (GS); Cortes Is Short Nasdaq 100; Najarian Owns (BAC); Najarian Owns (BUCY) & Short (BUCY) Calls; Najarian Owns (C) Calls; Najarian Owns (FCX), Is Short (FCX) Calls, Owns (FCX) Puts; Najarian Owns (INTC) Calls; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (PALM) Call Spread; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (YHOO) Call Spread; Najarian Owns (XHB) Call Spread

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