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HALFTIME REPORT: Plays for a Dollar-Dominated Market

Wednesday, 11 Nov 2009 | 1:48 PM ET
Fast Money Halftime Report
The Fast Money traders share their market insight and their midday trading advice.

Stocks maintained their upward momentum on Wednesday, maintaining their strength on the US dollar's weakness, led by the financial sector and tech stocks. Gold also continued its strength on the dollar's 15 month low, which was propelled in part by China's Q3 monetary report that indicates the country may consider other currencies besides the dollar to guide its exchange rates. However, after the dollar reversed mid-day, stocks pulled back from their session highs.

In the midst of the dollar-dominated hot streak for the markets, what are the plays to make now? The Fast Money traders break it down for you.

Word on the Street

With the Dow looking to rally for a third straight day and the dollar moving markets, can investors be confident in these upward moves?

The technical levels are the ones to watch in today's market, as the S&P 500 flirts with the 1,100, but continues to hit resistance at this level. "I think the markets are a little tired" says Tim Seymour, pointing out today's holiday trading characterized by low volumes and a closed bond market. Although the index may not break through that critical level today, Seymour expects the market to certainly go higher from here, as long as the dollar continues to weaken.

Another big story in the markets has been the transport sector, with UPS expecting the holiday season to be better than expected, following similarly positive news from Fedex, which expects high holiday volumes. But what can investors expect from the sector?

"I like the transports," says Brian Kelly of Kanundrum Research, who identifies the sector as a good one to play if you believe in the recovery. Currently, he is long Norfolk Southern and thinks the trade on railroads is, in reality, a play on China and coal. The good news from Fedex and UPS also signals good times ahead for the railroads, and retailers for that matter, he says.

With stocks like Amazon.com reaching yet another new 52-week high, is this a sign that the retailers are on an upward trajectory? Which retailers are best positioned for a breakout? Jim Iuorio of TJM Institutional Services thinks that investors may be getting ahead of themselves as far as retail names go, trading on guidance instead of real numbers. To play this sector, he suggests going to the mid-range retailers, instead of the high or low end, based on changing consumer behaviors.

Another sector that has been performing to the positive side is financials, but how sustainable are these moves? Jared Levy of Peak6 Investments thinks that the financials may be at risk for a pullback, simply because the reality of Washington's role in financial regulation basically is up in the air. He points out that financials had led us out of the recession, but there is still big options action surrounding the financial index on downside puts, trading up 40,000 times with investors hedging against downside risk. Levy's point is that if new regulation throws a "monkey wrench" into the works of the financial industry, the sector is at risk for some downside movement, although upside potential remains.

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Chart of the Day: USD/JPY

The US dollar can be identified as moving the entire market, and with the currency reaching a new 15-month low, what can investors expect to see, and how can they profit? Brian Kelly says the interesting comparison is the dollar's relationship to the Japanese Yen.

First, the Dollar/Yen comparison shows a 61.8% replacement of the October uptrend, so from a technical level this may be a good buying opportunity. Second, Japan's debt problem is coming to the forefront, with the CDS market indicating that the country is less likely to pay their debts and interest rates are having a muted effect. Lastly, market sentiment - the fact that there is widespread shorting of the dollar - raises the question whether investors are betting too heavily to the downside. Although there may be a little more room to the downside, Kelly says that if the dollar continues this downward trend, the dollar's drop could be more significant than this evidence demonstrates.

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Trading the Globe

With overseas markets on the rise, China continues to be the big story as the country outperforms other global markets and has come out of the recession. China's newest numbers indicate that domestic demand is picking up and revealed that oil imports to the country hit all-time high levels.

So, what are the trades here?

Jim Iuorio likes the gold trade, even though it may be crowded, he remains bullish on the commodity as a risk aversion play for the falling dollar. In the China trade, Iuorio suggests looking at Australia, an economy that draws significant demand from the Chinese consumers and the Australian dollar may be set to break out ahead of other global currencies. The country may have side-stepped the recession, he says, which may offer interesting investment opportunities.

Tim Seymour points out that the increased demand from the Chinese consumer is the big story here, and companies like China Life and some of the Chinese domestic banks may be the best places to put your money in the country now.

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Take Your Position: Wal-Mart

The world's biggest retailer is set to announce earnings after the bell on Thursday, how should you position your portfolio before the numbers come out?

Patty Edwards of Storehouse Partners sees that if investors take the news from Wal-Mart positively, the stock could reach a level of $60 per share, and right now she doesn't see much downside to the stock, as investors are looking at it as a safe, steady place for their money.

Another retailer, Macy's, dropped after the company announced earnings this morning, but is this a buying opportunity, or has the stock reached a reliable equilibrium? Edwards thinks that instead of the higher-end retailers, the middle market is the best place to put your money, with names like Kohls leading the pack.

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CALL THE CLOSE

Tim Seymour: I'm a buyer, the S&P will be above 1,100 by the end of the day.
Jared Levy: I'm a seller.
Brian Kelly: I'm a seller into the close.
Jim Iuorio: I'm a buyer, the market will be slightly higher.


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Trader disclosure: On November 11th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Kelly Owns US Dollar, Kelly Owns (FCX), Iourio Owns (EWA), Seymour Owns (POT)

CNBC.com with wires

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USD INDEX
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S&P 500
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AMZN
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1628
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FDX
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ASOE
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NSC
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UPS
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WMT
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SPDR FIN SEL
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