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Halftime Report: Are Retailers Sandbagging The Street?

Stocks retreated from their 13-month highs reached just one day ago but still managed to hold above 1100 after some retailers raised questions about the strength of the current recovery.

Dow component Home Depot , the top U.S. home improvement chain, said it faced a "great deal of pressure" in the housing and home improvement markets, while Target , the No. 2 discount retailer behind Walmart said it was cautious about its fourth-quarter performance.

The warnings came as both posted quarterly profits that topped estimates leading some investors to question whether officers of these companies were being deliberately downbeat?

What must you know to trade this market?

In retail I see a complete disconnect between Wall Street and Main Street, explains Patty Edwards of Storehouse. Retailers are trying to set the bar low enough so they can meet expectations. But that's because things are still touch and go for the consumer. But just because retailers aren’t willing to project that things are getting better doesn't mean there aren't buying opportunities in the space.

I agree that there is a major disconnect between Wall Street and Main Street, adds Jeff Tomasulo of SMB. But I’d stay away from retail stocks. There are better trades out there than retail. Instead I’d look at technology and commodities.

Retailers are just trying to be cautious, muses Fast Money trader Pete Najarian. Yes we’re seeing some pockets of strength but we know too well that consumers are easily spooked and won’t hesitate to stop spending and put that money back in their pockets.

It seems to me that Wall Street is using these retail outlooks as an excuse for the market to dip, adds Greg Troccoli of Opalesque. After the acceleration in the market, we're over-extended and we needed a reason to pullback. This seems as good as any.

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GOLDMAN AS MARKET INDICATOR?

Technical analyst Greg Troccoli is keeping a close eye on the action in Goldman Sachs which has lately underperformed the S&P 500. Considering Goldman has been a broad market 'tell' does the action signal the end of the line?

What must you know?

From a technical perspective, I’m watching the 21-day moving average line which is negative, explains Troccoli. It’s the longest period this line has been negative since November 2008. Goldman led the market higher. It may be telling us a correction is coming. I think Goldman could test $160 on the downside.

I’d watch the rest of the financials also, counsels Patty Edwards. I’m seeing other breakdowns in the space.

It's true that Goldman has been the canary in the coal mine, adds Pete Najarian. But I can’t help but wonder if the stock is just going to take a pause before it resumes its march higher.

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COMMODITIES DOWN ON HIGHER DOLLAR

Investors are watching the price action in commodities after the U.S. dollar rose against a basket of currencies, pressuring oil , gold as well as other metals. In fact, the dollar index recorded its largest daily gain since late September.

As you know, commodities and the U.S. dollar have moved in opposite directions lately.

What’s the trade?

I think any pullback in commodities is an opportunity, says Pete Najarian. I don’t expect the dollar to make a major reversal.

From a long-term trading perspective, I’d be careful, says Jeff Tomasulo. The market has moved higher very quickly. But for a short term trade I’d be a buyer of commodities on the dip.

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CALL OF THE DAY: MICROSOFT

On Tuesday Microsoft hit a 52-week high after UBS singled out the software giant as its preferred pick on its tech ten list.

The move comes just days after analyst Brent Thill initiated coverage of Microsoft with a ‘buy’ rating.Although the stock has soared about 50% over the last 6 month Thill thinks shares still have room to run.

Microsoft is headed into one of the strongest product cycles the company has had in the last 5 years, Thill tells us. And we think there’s considerable pent up demand as a number of the older XP machines need to upgrade. They never moved to Vista and I think they leap frog right to Windows 7.”

Thill has a $34 price target on the stock.

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CALL THE CLOSE

Pete Najarian: I’m a buyer, the momentum continues to work.

Patricia Edwards: I’d be short the market but long individual stocks.

Greg Troccoli: I got beat up but I’d still be a seller.

Jeff Tomasulo: I’m a buyer.


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Trader disclosure: On Nov. 17th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders;
Edwards Owns (COST)
Edwards Owns (WMT)
Tomasulo Owns (FCX)
Tomasulo Owns (AMZN)
Tomauslo Owns (AAPL)

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