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Halftime Report: Is Friday's Sell-Off Overdone?

Friday, 16 Oct 2009 | 1:14 PM ET

Disappointing results from two Dow components sent stocks tumbling on Friday with financials leading the declines.

GE's weaker-than-expected revenue and Bank of America's loss reminded investors that businesses and consumers continue to struggle as the economy slowly recovers from recession.

The results were a setback for the bulls as investors took profits after a strong run that saw major indexes hit new yearly highs and pushed the Dow industrials above 10,000 on Wednesday.

The negative sentiment driving Friday’s market action may have been amplified by JPMorgan and Intel, which breezed past estimates earlier in the week – and generated a belief that earnings season would largely be stronger-than-expected.

So, are we in for a lackluster earnings season afterall or is Friday’s sell-off overdone?

Fast Money Halftime Report
The Fast Money traders share their midday trading advice.

Instant Insights from the Fast Money traders

I think the sell-off is overdone, says Steve Grasso of Stuart Frankel. It seems to me that the pullback is an opportunity to buy -- especially in best of breed financials. I’d be a buyer of Goldman and maybe JPMorgan . You’ll thank yourself over the next couple of weeks.

Although patterns in the S&P suggest that stocks may push to 1150 or even 1200, I’m not an aggressive buyer, counters Bill Strazzullo of Bell Curve. We’re close to the top of the range and I’d suggest unwiding positions rather than being an aggressive buyer at these prices.

Don’t fade now, counters Steve Grasso. Hold onto your positions. You’ll regret being a seller. I expect to see a real chase for performance in November and December and I'd place my bets accordingly.

The Vix is down tremendously, counsels Brian Stutland of Stutland Equities. If you want to hold you positions I’d also buy some puts for downside protection. Right now they're fairly inexpensive.

I’ll be watching to see if investors become buyers of technology late in the session, adds Mike Gurka of Empower. There’s so much optimism surrounding this sector -- how tech trades is probably a good market ‘tell'.

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BANK OF AMERICA BIGGER LOSS THAN FORECAST

As we mentioned above, financials led the way lower after Bank of America posted a $1 billion third-quarter loss citing credit card and mortgage woes. The weakness from consumers eclipsed strength from BofA’s Merrill Lynch unit – $2.2 billion in profits.

What’s the bank trade?

It would be a mistake to lock in profits in financials, counsels Steve Grasso. I expect to see a real chase for performance in November and December and I'd place my bets accordingly.

I’m seeing dynamics in other parts of the world that suggests to me financials such as Goldman will do very well, adds Mike Gurka. I expect to see even better returns going forward.

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TOPPING THE TAPE: GOOGLE

Strong earnings from Google led to a series of analyst upgrades on Friday. Canaccord Adams said the company's shares could hit $700 a piece, a level not reached since December 2007 while Jefferies analyst Youssef Squali lifted his price target on the stock to $600 from $470.

These and other analysts interpreted earnings to mean on-line advertising is experiencing a turnaround and that Google is set to be the prime beneficiary.

Ga-Ga For Google: New Analyst Price Targets
Canaccord Adams: $700
UBS: $635
Goldman Sachs: $635
FBR: $680

What’s the tech trade?

I’d play Google with options, counsels Brian Stutland, otherwise at these levels it becomes a terribly capital intensive trade. Personally I’d sell some put spreads around $550.

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COMMODITIES CHECK:OIL FALLS FROM YEARLY HIGHS

U.S. crude futures fell on Friday in choppy trading as a stronger dollar and a drop in consumer sentiment pulled oil back from an early high above $78 a barrel.

What’s the trade?

The charts should rule near term and despite the possibility of some pre-weekend profit taking today, I’d expect to see additional upside price follow through early next week with $78.25 representing the next significant upside target, says Jim Ritterbusch of Ritterbusch & Associates.

Addison Armstrong of Tradition Energy doesn’t quite agree. I’m doubtful that we’re going to break above $80, he says. This market looks like its overextended. If we break below $76.50 we could also break down to $76.25 pretty quickly.

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CALL THE CLOSE

Steve Grasso: I’m a buyer. I think the sell-off is overdone.

Mike Gurka: I’m a buyer. I see momentum coming down the pipleline.

Bill Strazzulo: I’m long into 1150 but then I'mgetting off the train.

Brian Stutland: I’m a buyer below Dow 10,000 and a seller above it.


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Trader disclosure: On Oct. 16th, 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 (HGSI) Call Spread; Najarian Owns (XLF) Calls; Najarian Owns (YHOO) Call Spread; Najarian Owns (BAC); Najarian Owns (WFT) Calls; Grasso Owns (ASTM), (BAC), (C), (COST), (PRST), (V), (WMT), (FAZ), (XLF), (AAPL); Terranova Owns (SUN), (OIH), (HOC), (HES), (POT); Terranova Is Short (GRMN), (CCL)

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