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Halftime Report: New Signs Of Downdraft In Market?

Both the Dow and S&P 500 traded modestly higher on Wednesday, largely due to positive data on the labor market and housing sector, considered two of the biggest headwinds facing the economy.

Specifically, the number of workers filing claims for jobless benefits fell by a surprisingly large amount last week, while new home sales rose.

However it’s consumer spending that the Fast Money traders are watching closely.

Just released data shows consumer spending, which normally accounts for over two-thirds of U.S. economic activity, increased 0.7 percent last month and consumer sentiment ticked higher.

How should you be positioned?

Strategy Session with the Fast Money traders

I’m distressed about consumer spending data, says JJ Kinahan of TD Ameritrade. When you dig down, you see that spending may be up 0.7% but income is up only 0.2 %. That’s the same pattern we saw in 2005-6 and it’s a problem.

It’s good that people are spending but they do need to spend within their means, adds Brian Kelly of Kanundrum.

I’m positive on the spending numbers, counters Fast Money trader Tim Seymour. We’ve been concerned that consumers were retrenching and wouldn’t spend – leaving the economy in shambles. If they’re spending more that’s a positive.

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OPTIONS ACTION: VIX

The Chicago Board Options Exchange Volatility Index or VIX , considered a gauge of Wall Street's fear, sank to its lowest intraday level in 15 months on Wednesday.

What is it telling the traders?

I’ve spotted a large volume of December 27.5 calls being purchased and December 32.5 calls being sold, explains JJ Kinahan.

That suggests to me a big investor is betting volatility is going to move up – which would equate with a downdraft in the market. And it appears this investor thinks it happens gradually between now and December expiration.

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CHART OF THE DAY: DOLLAR INDEX

The dollar hit a 15-month low against a currency basket on Wednesday after Federal Reserve minutes showed policymakers saw the U.S. currency's recent decline as "orderly".

Traders dumped the dollar across the board, with the minutes reinforcing the view that interest rates will stay essentially at zero until around mid-2010.

What’s the trade?

I’m watching the $74.50 level, explains Brian Kelly. That was the breakout level from August 2008. That resistance point now becomes support. If we get much lower than this, I would unwind long positions.

I’m being asked how to short the dollar by lawyers and dentists on the steps of church Sunday, jokes Steve Cortes of Veracruz. When that happens it says to me the trade is frothy.

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GOLD HITS ANOTHER RECORD HIGH

Gold made a record high for a second time this week, due to dollar weakness and published reports which suggested India was "open to buying" more gold from the International Monetary Fund.

Gold has jumped nearly 13 percent since the beginning of this month as investors poured money into the precious metal after India's central bank first announced it had bought 200 tons of bullion from the IMF.

The central banks of Russia and Sri Lanka have separately said they had bought gold to diversify their assets.

What’s the trade?

I don’t see any reason for the long gold trade to change, says Tim Seymour. I expect gold to continue its march higher.

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TOPPING THE TAPE: HIGH END RETAIL

Shares of Tiffany traded higher on Wednesday after the jeweler’s quarterly profit beat Wall Street expectations and the company raised its full-year forecast on Wednesday, saying early trends in November were encouraging ahead of the holiday shopping season.

On Monday’s Fast Money Citi retail analyst Kimberly Greenberger told us, “we ‘do’ think it’s going to be a blue box Christmas."

”The single highest correlating factor to spending among high end consumers is stock market returns with a 3-6 month lag. Given the rally we’ve had off the march lows I think that bodes well for a high end holiday.”

Separeately, J Crew Group reported a quarterly net profit far above Wall Street estimates due to strong autumn. J Crew has been one of the few U.S. apparel retailers to see robust sales in a still-weak economy with some market mavens speculating it’s because Michelle Obama wears their garments.

What’s the trade?

Strength in high end retail is not uniform, counsels Steve Cortes. The names mentioned above are performing well but Nordstrom and Ralph Lauren haven’t moved lately. Personally, I think the value is in lower end names like Family Dollar and Walmart.

In the space, I like Darden and PF Chang, adds Brian Kelly.

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TOPPING THE TAPE TODAY: OIL & NAT GAS

Oil traded higher on Wednesday despite a report showed U.S. crude and gasoline inventories rose, adding to ample stockpiles.

What must you know about the action?

Crude oil tends to fail around $80, says Steve Cortes. I think it’s a sign that the consumer remains weak. If they were stronger oil would climb higher.

However, in the space, it’s natural gas that Fast Money trader Joe Terranova is closely watching.

I truly believe the current rally in natural gas has legs, says Joe Terranova. I think nat gas goes to 5.32 and then it breaks out to 5.50. In fact, I think nat gas is a better energy trade than oil.

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CALL THE CLOSE

Tim Seymour: I think the market drifts higher.

Brian Kelly: I’m a buyer especially of utilities.

JJ Kinahan: I’m a buyer.

Steve Cortes: I’m a buyer of low end retail.


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Trader disclosure: On Nov. 25th, 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), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Seymour Owns (AAPL), (BAC), (EEM), (FXI), (INTC); Terranova Owns (SU), (GOOG), (AAPL); Terranova Owns (UNG) April 2010 Calls; Terranova Owns Gold Futures; Terranova Owns Nat Gas Futures; Grasso Owns (AAPL), (BA), (BAC), (C), (COST), (PFE), (V), (WMT)

For Steve Grasso
Stuart Frankel Owns (NYX)
Stuart Frankel Owns (SDS)
Stuart Frankel Owns (TBT)
Stuart Frankel Owns (PDE)
Stuart Frankel Is Short (QQQQ)

For Dan Binder
Jefferies Has Received Compensation From (BJ)
Jefferies Makes A Market in (COST)
Jefferies Has Received Compensation From (LOW)
Jefferies Makes A Market In (SPLS)
Jefferies Has Received Compensation From (USTR)

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