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Halftime Report: Is an S&P Reversal Imminent?

Published: Thursday, 5 Nov 2009 | 3:54 PM ET

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By: Constance Parten
Senior Producer

Halftime Report

Stocks [.SPX Loading... () ] advanced Thursday as a strong reading on productivity and an easing in jobless claims helped cheer investors during a choppy week of trading.

The Dow Jones Industrial Average [.DJIA Loading... () ] shot up more than 150 points, or about 1.5 percent. All 30 Dow stocks where higher.

Techs were among the best performers after Cisco [CSCO Loading... () ] posted strong results after the bell Wednesday.

Stocks advanced Thursday, nearing the Dow 10,000 mark as a strong reading on productivity and an easing in jobless claims helped cheer investors during a choppy week of trading.

So where are the day's best plays?

Strategy session with Fast Money traders

I’m not all that happy today, admits Dennis Gartman, author of the Gartman Letter. I think the trend line has been broken and the rally is on lesser volume. I’m short but also will probably be less short by the end of the day.

But volatility [VIX Loading... () ] was down significantly, and OptionMonster Jon Najarian says he thinks that will continue, even after Friday's employment data. I think we go lower into the weekend, he says.

Patricia Edwards of Storehouse is also net short like Gartman, saying she is not feeling comfortable with where the markets are. She'll likely lighten up on the shorts, but still not go long.

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CHART OF THE DAY: S&P

Chartologists, including Greg Troccoli, are seeing a head-and-shoulders formation taking hold on the S&P [.SPX Loading... () ] today. Is it signaling a market reversal?

If it is a head and shoulders top, that means markets are capitulating and if so, that could send the S&P into a bearish pattern for the next four to six months, Troccoli says. If we don't take out the recent highs, the right shoulder should collapse in the next week to week and a half, he added.

Levels he's watching: Upside to 1075 leaves him skeptical. Downside to 1040 would complete the head and shoulders pattern.

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NEXT TRADE: HOT TECHS

Techs were among the early leaders after Cisco [CSCO Loading... () ] posted strong results after the bell Wednesday. Shares of the networking-gear maker says the tech sector has hit bottom and a recovery is underway.

"There will be a good chance we will look back to see that Q3 was in fact the bottom, that Q4 was the tipping point, and the recovery started aggressively in Q1 of fiscal '10," Cisco CEO John Chambers says.

Semiconductors also rallied, with Intel [INTC Loading... () ] up more than 2 percent, after a report showed chip sales are expected to rise 10 percent next year.

What's the trade?

Jon Najarian says he really likes that Google [GOOG Loading... () ] and Cisco [CSCO Loading... () ] are doing exceedingly well, and believes their strength could lift all boats, sending the S&P higher and breaking the head and shoulders trend.

It might not be the second coming for Motorola [MOT Loading... () ], but people really like what the company is doing says Patricia Edwards of Storehouse Partners. Still, there's a lot of competition in the handheld sector. I think this trade could get crowded over the longterm, but I think Motorola has done a good job for themselves right now, Edwards says.

Research In Motion [RIMM Loading... () ] is a great shorting option at this time, Dennis Gartman says. Pick the one that's broken the most, he explained. Jon Najarian agreed, saying volatility is getting pushed lower, making RIMM the most vulnerable name in the sector.

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NEXT TRADE: A MIXED RETAIL BAG

Despite signs of improved foot traffic at retail stores, the majority of retailers posted same-store sales Thursday that fell short of Wall Street estimates.

The reports put pressure on retail stocks, as investors viewed the results, which were less robust than those in September, as disappointing ahead of the all-important holiday season.

According to Thomson Reuters, more than half — some 52 percent of those retailers reporting — reported same-store sales below analysts' estimates. Overall, Thomson Reuters says retail sales rose 1.8 percent in October, slightly below the estimated 2.0 percent gain.

"We are beginning to see some signs of foot traffic improving," says Dana Telsey, chief research officer of Telsey Advisory Group. She sees encouraging trends within the results.

But teen retailers like American Eagle [AEO Loading... () ] and Aeropostale [ARO Loading... () ] are being hurt by a lack of new fashion this season, Edwards says. The two stores are being pressured not only by Nordstrom [JWN Loading... () ], which is getting a good bump from its hot fashion line based on the Twilight series, but also Abercrombie & Fitch, which, in a rare move, is discounting its lines. That's going to put pressure on American Eagle and Aeropostale, and we're seeing it in the numbers today, Edwards says.

Troccoli says the retail index looks pretty stable. I'd be picking up some names here, he says.

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TAKE YOUR POSITION: STARBUCKS

Starbucks [SBUX Loading... () ], which has seen customer traffic fall because of the recession, cut the prices on some of its easiest-to-make beverages while raising prices on more complicated beverages.

The company, which has been shutting stores, laying off workers and cutting other costs, says it would keep open 27 locations out of 800 that had been slated for closing. The about-face came after the Seattle coffee maker reviewed the stores' finances.

How should you be positioned?

Pete Najarian says Starbucks has proven itself moving through the recession. Consumer loyalty is there, the consumer is rebounding and looking to spend to the upside, he says. This isn't a name he loves even if the tape is going down, but he likes the price action and the market itself and sees more upside for the coffee seller.

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FAST & FURIOUS: BUY IT OR SELL IT?

Barclays Capital upgraded shares of Palm [PALM Loading... () ] from Underweight to Equalweight Thursday, also reducing his price target from $12 to $11.

In the pre-market session, Palm shares have jumped 2.6 percent to around $11.14.

I like it down here after this correction, says Jon Najarian.

Gold [US@GC.1 Loading... () ] was modestly higher Thursday, maintaining technically oriented buying. Is it too late to buy in?

I own gold in terms of other currencies, but I would not own gold in terms of the dollar, says Dennis Gartman.

Tech giant Nvidia [NVDA Loading... () ] reports after the bell Thursday. Greg Troccoli says the upside is very limited. "I wouldn't touch it."

Online retailer Blue Nile [NILE Loading... () ] also will report after the bell. Some analysts have referred to the jewelry seller as the new go-to place for diamonds. Patricia Edwards of Storehouse Partners says she's staying on the sidelines for right now.

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CALL THE CLOSE

Dennis Gartman: I'm a little short, I have to get a little less short.

Greg Troccoli: My stop is right here.

Patricia Edwards: I'm short. I may ease it up a little before the end of the day.

Jon Najarian: I've been long all day and I'm holding into the bell waiting for tomorrow's report.

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Trader disclosure: On November 5th, 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); Terranova Owns (GS), (OIH), (CAM), (MA), (JOYG), (RIMM); Najarian Owns (LAZ), Is Short (LAZ) Calls, Owns (LAZ) Puts; Najarian Owns (RIMM) Call Spread; Najarian Owns (SBUX), Is Short (SBUX) Calls; Najarian Owns (UUP) Calls; Najarian Owns (YHOO), (YHOO) Puts; Najarian Owns (ESI) Calls; Grasso Owns (AAPL), (ABK), (ASTM), (BA), (BAC), (C), (COST), (CSCO), (FAZ), (PFE), (PRST), (WMT), (V)

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Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
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