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Halftime Report: Is Stronger Dollar About To Derail Market?

The Dow traded modestly higher on Friday with investors wondering if the bulls could generate enough momentum to drive the Dow over the psychologically important 10,000 level next week

Perhaps the biggest variable is the dollar, which rose broadly, after Fed Chairman Ben Bernanke said that monetary policy might have to be tightened as a recovery takes hold. That put a lid on commodity prices sending both oil and gold lower.

The dollar's decline, which culminated in a 14-month low against a basket of currencies on Thursday, has been one the major underpinnings of the stock market's run-up.

Is there a stronger dollar trend in place?

I don’t expect a stronger dollar to last, says Scott Nations of NationsShares. Just because Ben Bernanke talked about the potential of rate hikes doesn’t mean we see them – at least not anytime soon. I think this one-day strength in the dollar is just that -- one day.

It seems to me Bernanke’s rhetoric is a delay tactic, adds JJ Kinanahan of TD Ameritrade. I don’t see any reason to buy the dollar, either.

The risk of raising rates far outweighs the rewards for Bernanke, adds Bill Strazzullo of Bell Curve. If the Fed raises rates too quickly they could snuff out the recovery. And from a technical perspective patterns in the Dollar Index suggests it’s heading to its 2008 lows.

I also don’t believe the Fed will raise rates anytime soon, adds Fast Money trader Steve Grasso. On this dip I would buy energy names and gold .

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THE OBAMA TRADE: INSURERS ROARING BACK

Shares of UnitedHealth , Aetna and other health insurance providers came roaring back on Friday, one day after comments about a public option made by House Speaker Nancy Pelosi sent them tumbling.

What’s the trade?

If you’re looking for a trade look at playing options in J&J, counsels Brian Kelly. The stock doesn’t bounce around too much and the options are reasonably priced.

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CHIP NAMES CLIMBING HIGHER

Investors snapped up technology shares on Friday after Baird upgraded RIM to "outperform" from "neutral," saying upcoming device launches could be a positive catalyst and the current stock price was attractive.

Also, the SMH made gains after Deutsche raised it’s chip industry forecast and UBS said Intel’s Q3 sales could top outlook.

What’s the trade?

I expect to see chip names run through the end of the year, says Steve Grasso as investors rotate out of high beta trades and into these stocks.

I’ve spotted options action in the SMH that look bearish, counters JJ Kinhahan. I think it’s a call on earnings. It seems investors are not quite as bullish on other names in the SMH as they are on Intel .

Instead of chips, it seems to me that investors who want to play the space are more focused on playing Microsoft for Windows 7, says Scott Nations.

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TAKE YOUR POSITION: FINANCIALS

The Financials ETF traded higher on Friday ahead of next week’s earnings reports from the nation’s biggest banks.

Positive sentiment stemmed from Raymond James, which began coverage of JPMorgan with a "strong buy", saying the bank is poised to benefit from acquisitions, organic growth and market share gains.

"Additionally, it has a fortress-like balance sheet and is expected to be one of the first banks 'out of the gates' to a more normalized earnings level," analyst Anthony Polini wrote in a research note dated Oct. 8.

The analyst set a price target of $60 on the stock.

Financial Earnings Next Week:

Wednesday: JP-Morgan
Thursday: Citigroup, Goldman Sachs
Friday: Bank of America

What’s the trade?

I'm looking at the XLF as a proxy for the sector, says Bill Strazzullo. It seems to me this ETF is breaking higher and that suggests there’s good upside here in this space.

I’m watching Goldman, adds Steve Grasso. Typically they shock investors with the amount of money they make and how they make it.

I’m seeing put buying in the sector, reveals Scott Nations. But that’s because it’s a bifurcated market. Some of the names are fantastic and other such as Wells and Citi just can’t seem to get any traction.

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OIL REVERSES LOWER

Early in the session crude oil pushed higher only to reverse course in afternoon trade.

It appears dollar strength, which is bearish for oil, outweighed forecasts from the International Energy Agency that suggested oil demand will grow at a greater rate than previously anticipated through 2009 and into 2010.

What’s the trade?

To play the space, you have to ask yourself ‘which way is oil going?’ explains Fast Money trader Joe Terranova. If you think the price of oil is going higher then I’d play the high beta names such as the oil services names . And if you think it’s going to pullback I’d go with the defensive plays such as Exxon.

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TRADE TO GO: NAT GAS PLAY

Steve Grasso suggests putting EnCana on your radar.

It’s a nat gas play, an oil play and a currency play because it’s based in Canada.

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CALL THE CLOSE

Steve Grasso: I’m a buyer and think the S&P is going higher.

JJ Kinahan: I’m a buyer into the close.

Bill Strazzullo: I’d stay long. I think the S&P goes higher.

Scott Nations: I’m a tepid buyer into the close.


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Trader disclosure: On Oct. 9th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (INTC), (MSFT), (NUE); Finerman's Firm Owns (BAC), (BAC) Calls, (BAC) Preferred; Finerman's Firm Owns (UNH) Calls; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm Owns (CSCO), (M), (MSFT), (DRI); Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM), (UNG), (USO); Finerman's Firm And Finerman Own (WFC) Preferred; Finerman's Firm Owns (WLP) Calls; Finerman's Firm Is Short (TLT); Terranova Owns (JPM), (MOS), (NOV); Terranova Is Short (GRMN), (CCL); Terranova Owns December 2009 Gold Futures; Terranova Owns December 2009 Crude Oil Futures; Terranova Owns December 2010 Crude Oil Futures; Terranova Works For (VRTS); Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.; Seymour Owns (AAPL), (BAC), (EEM), (F), (INFY), (RTP)

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