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Halftime Report: Market Flirting With Resistance

Stocks rallied on Tuesday as fears about Dubai eased. Instead the market focused on latest ISM numbers, which showed the manufacturing sector expanded in November for the fourth straight month although it was at a slower rate than expected.

Also investors liked hearing that pending sales of existing homes rose more than expected to their highest level in 3-1/2 years.

Both pieces of positive economic data combined with declines in the dollar lifted commodities and the broader market.

What must you know to trade in this environment?

Instant Insights with the Fast Money traders

On the S&P I’m watching 1112 on the December contract as a critical technical level, says Greg Troccoli of Opalesque. If it breaks above that level of resistance then I’m bullish. But just an intraday violation isn’t enough, we need to close above it. But by no means is the market overbought.

On Friday the market had every reason to sell off but it didn’t, muses Jeff Tomasulo of SMB. The market traded down to key critical levels but then bounced higher. That’s bullish.

It seems to me that a lot of shorts are starting to get squeezed, adds Pete Najarian. If we can get above resistance I think we start to see shorts start to cover and that could drive the market even higher. But we have to get above resistance first.

Also, I’ve spotted a lot of upside call buying in airlines, reveals Najarian. That suggests big investors are betting on a significant move to the upside. Again, perhaps due to a short squeeze.

If I were going to play transports, instead of airlines I’d look at UPS or FedEx , says Patty Edwards of Storehouse – as plays on the strength of Cyber Monday shopping.

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MARKET BUZZKILL: FINANCIALS

The traders are closely watching the action in bank stocks, which appear to be underperforming the market.

What’s the trade?

The financials appear to be consolidating, muses Jeff Tomasulo. Over the next couple sessions watch the space closely – it may lead us higher.

I like Goldman and other names as the space, says Pete Najarian. They look fairly valued.

And in the space I can’t help but notice that AIG is up sharply on Tuesday – but of course that’s a volatile name, adds Najarian. Personally I expect this stock to pull back.

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TOPPING TAPE: SPECIALTY RETAILERS

Shares of Staples hit their highest levels since September 2008 after the company reported third-quarter results that topped analyst estimates and forecast higher sales in the current quarter.

Elsewhere in the sector, shares of Guess shot higher after the company posted a larger-than-expected quarterly profit and Williams-Sonoma made gains after it raised its full-year outlook.

What’s the retail trade?

I went to Guess over Black Friday and was impressed by how robust their business was, says Patty Edwards. That says to me that high quality denim is important to consumers. Also electronics and home goods seem to be selling. Those are the places where I’d play.

In the space I like Amazon , adds Jeff Tomasulo. I think a lot of people just like to point and click when they go holiday shopping and Amazon should be the beneficiary.

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AG NAMES RALLY

The traders are again taking a close look at ag stocks after Morgan Stanley said it believes the bias keeps shifting to the upside for the ag products group – and after Broadpoint raised its price target for Potash , Mosaic and Agrium.

Should you buy here?

The grain markets are looking strong, says Dennis Gartman. If you’re bullish but don’t want to trade grain futures it makes sense to trade the ag names.

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GOLD TOPS $1,200

Gold hit record highs above $1,200 an ounce on Tuesday as dollar weakness drove buying of the metal as an alternative asset.

Prices could push further through the $1,200 an ounce level to new record highs if the dollar continued to weaken, analysts say.

Significant downside risks to the price were unlikely to be seen before January, adds Michael Lewis, head of commodities research at Deutsche Bank, with seasonal factors affecting the dollar likely to drive gold higher in the short term.

In fact, strength in gold lifted other precious metals, with silver and palladium both rallying to their strongest since July 2008, and platinum hitting its highest since August last year.

What’s the trade?

Gold continues to be the best metal play, muses Dennis Gartman. But if you’re going to be a buyer of gold don’t do it as a weak dollar play – that’s an overcrowded trade. Everyone I know is short the US dollar.

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TRADE TO GO: TECH PLAY

Pete Najarian suggests putting Apple on your radar. Looking at their Cyber Monday numbers and after Deutsche bank raised estimates – on any pullback I’d be a buyer.

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CALL THE CLOSE

Pete Najarian: I’m a buyer

Patricia Edwards: Wait for 1112 on the S&P and see what happens.

Greg Troccoli: I’d be a seller

Jeff Tomasulo: I’m a buyer


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Trader disclosure: On Dec. 1st, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders;

Tomasulo Owns (GLD), (AMZN), (GS), (XOM)
Edwards Owns (WMT)
Gartman Owns Gold
Najarian Owns (AAPL) Call Spread

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