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Halftime Report: Can Market Rally Continue As Oil Prices Climb?

Both the S&P and Dow gave back earlier gains on Wednesday with the bulls unable to drive advances despite strong earnings reports from both tech and the financials.

However the Fast Money traders are also focused on natural resources and action in the dollar . The prospect of U.S. interest rates staying at exceptionally low levels for longer than most other major countries sent the greenback sliding.

In turn crude oil and other commodities continued their march higher. But can stocks continue to climb if oil prices climb as well?

Instant Insights with the Fast Money traders

Yes, they can. I think the commodities story will be the story through the end of the year, explains Fast Money trader Joe Terranova. Money managers are chasing returns. That factor combined with a weak dollar and worldwide stimulus spending should lead to a commodities led recovery. And I'd play it with long positions in Bucyrus and Joy Global .

I’m concerned about the levels in the S&P, counters Brian Kelly of Kanundrum. We’ve got rising oil prices which means rising prices at the pump. Don’t forget BofA and Wells both said today they’re seeing consumer credit issues. If consumers can’t afford gas then how are they going to buy things at Walmart and TJMaxx and other stores.

Don’t forget unemployment, adds Danielle Hughes of Divine Capital. If you don’t have a job where is the money going to come from? It begs the question, what's the driver of this market -- is it fundamentals or money on the sidelines chasing returns? But with that said, there’s money out there and it needs a place to go and for the time being I think it goes into commodities.

I'm watching the Vix, which hit a 52-week low, says Jared Levy of Peak6. It suggests that complacency is growing in this market. If the market continues to drift higher, I’d look at put protection for your long positions.

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MORGAN STANLEY SURGING AFTER EARNINGS BEAT

The financials helped lead the charge higher on Wednesday buoyed by Morgan Stanley earnings which showed a profit after 3 consecutive quarters of losses.

The firm cited strong trading revenue and improved investment banking as the factors largely responsible for their gains.

What’s the bank trade?

For me the issue with Morgan Stanley is sustainability, says Brian Kelly. I can’t help but wonder how sustainable their profits will be in the long term.

Elsewhere in the sector, Wells Fargo and U.S. Bancorp helped drive gains after their results showed impressive revenue from their respective mortgage writing businesses.


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TOPPING THE TAPE: YAHOO

Technology also showed strong gains after results from Yahoo! beat profit and sales expectations – they also said advertising showed signs of life last quarter. Meanwhile both Apple and Google made 52-week highs.

What’s the trade?

Even with Google and Apple at 52-week highs, I’m still bullish on the space, says Joe Terranova. I think Google goes to $600 and Apple goes to $250.

Tech seems to have a lot of cheerleaders, muses Danielle Hughes, and perhaps with good reason. Of all the tech companies that have reported about 78% have beaten. But I’m also growing concerned that things have gotten quite lofty.

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OIL RALLIES PAST $80

Oil prices jumped to $80.05 a barrel on Wednesday, matching its one-year high hit the previous day, after a U.S. government report showed a smaller than expected rise in crude stocks.

"The market is interpreting this report as bullish, but I think crude prices may be rising just because the report didn't contain any bearish surprises," muses Gene McGillian of Tradition Energy.

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TAKE YOUR POSITION: EBAY

Shares of eBay hit a new 52-week high on Wednesday ahead of the company’s earnings report.

What’s the trade?

I’d play eBay conservatively with an out of the money put spread, says Jared Levy.

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DOLLAR CONTINUES DIVE

As we mentioned above, the dollar edged lower against the euro and higher-yielding currencies on Wednesday after a brief recovery from a 14-month low versus a currency basket fizzled out.

The greenback had earlier stabilized as investors booked profits on recent sharp gains in higher-yielding and perceived higher risk currencies. Failure by the euro to test the key $1.50 level also buoyed the U.S. currency.

However, currency investors didn’t find the rally convincing with sentiment towards the greenback still downbeat on the prospect of U.S. interest rates staying at exceptionally low levels for longer than most other major countries.

What’s the trade?

If you think the dollar continues to get weaker I’d suggest playing it with long positions in the FXE , FXA or FXC , counsels Dennis Gartman.

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TRADE TO GO: MINING PLAYS

As we mentioned above, Joe Terranova suggests watching Bucyrus and Joy Global. I think they’re both great plays on global recovery. It feels like we’re having a commodities led recovery and these stocks are the way to play it.

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CALL THE CLOSE

Joe Terranova: I’m a buyer.

Jared Levy: I’m a buyer into the close

Danielle Hughes: I’m a buyer too.

Brian Kelly: As long as the dollar is weak I’m a buyer.


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Trader disclosure: On October 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; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Seymour Owns (DIG), (MSFT), (AAPL), (BAC), (EWZ), (INTC); Najarian Owns (DE) Call Spread; Najarian Owns (STX) Call Spread; Najarian Owns (XLF) Call Spread; Najarian Owns (YHOO), (YHOO) Puts; Terranova Owns December Crude Oil Futures

For Joe Terranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (CAL)
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DLR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (DBA)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (UA)

For Peter Schiff
Schiff Owns Yen & Foreign Currencies
Schiff Owns Gold

For Moshe Orenbuch
(AXP), (COF), (DFS), (MA), (JPM), (C), (BAC) Is Or In Past 12 Months Was A Client Of Credit Suisse
Credit Suisse Provided Investment Banking Services To (AXP), (COF), (DFS), (MA), (JPM), (C), (BAC) In Past 12 Months
Credit Suisse Provided Non-Investment Banking Services To (AXP), (COF), (DFS), (JPM), (C), (BAC) In Past 12 Months
Credit Suisse Has Managed Or Co-Managed A Public Offering Of Securities For (AXP), (COF), (DFS), (JPM), (C), (BAC) In Past 12 Months
Credit Suisse Expects To Receive/Seek Investment Banking Compensation From (AXP), (COF), (DFS), (V), (MA), (JPM), (C), (BAC) In Next 3 Months
Credit Suisse Has Received Non-Investment Banking Compensation From (AXP), (COF), (DFS), (JPM), (C), (BAC) In Past 12 Months
Credit Suisse Is A Market Maker In (MA)
Credit Suisse Owned 1% Or More Of (V) As Of End Of Last Month

For Jim Cramer
Cramer's Charitable Trust Owns (V)
Cramer's Charitable Trust Owns (WFC)
Cramer's Charitable Trust Owns (PPG)
Cramer's Charitable Trust Owns (CVX)

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