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Halftime Report: Fade Or Follow Two Day Rally?

Tuesday, 2 Feb 2010 | 1:13 PM ET

February continued to be a pretty good month for the bulls as upbeat earnings and housing data lifted the S&P 500 and Dow with industrials and materials leading the way.

Tailwinds were wide ranging; DR Horton reported its first profitable quarter since March of 2007 while Whirlpool said 2010 would be a year of full recovery for the company. And the CEO of UPS said the economy looks to be “gradually firming.”

However, on a bearish note, at least relatively speaking, technology shares lagged the rally, with Google and Microsoft noticably weak.

Considering the sluggish action in tech, should you follow or fade the broad market rally?

Instant Insights with the Fast Money traders

I’m seeing action in Vix puts, explains JJ Kinahan of TD Ameritrade. Considering the Vix and S&P are inversely related, that suggests big investors believe the rally could continue.

I agree that on a long term basis the S&P could go higher, adds Patty Edwards of Storehouse. Retails sales come out on Thursday and I think they will be bullish. Yes there are a lot of headwinds but the question is -- have we been fading the rally too much – I think we have.

On a short term basis I also like the market, says Todd Gordon of Forex.com. 1100 is a key critical level and if we break above it the next technical level is 1120. But the charts suggest to me that the long term trend is probably down.

Transports and industrials speak volumes about the recovery, explains Fast Money trader Pete Najarian. Now, I’m watching FCX, X and Alcoa as market ‘tells’. However, right now, I’d take some profits at 1100.

Fast Money Halftime Report
The Fast Money traders share their market insight and midday trading advice.

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TAKE YOUR POSITION: FINANCIALS

Investors are also closely watching developments in Washington Tuesday, as White House adviser Paul Volcker testifies before a Senate panel.

Volcker is expected to tell the Senate Banking Committee that commercial banks' proprietary and speculative activities should not be protected by the government, according to testimony obtained by Reuters.

His comments could hurt bank stocks, which tumbled when reports on the proposal broke last month.

But "If (Volcker) backs off a little bit, or if people gain confidence (the proposal) is not going to be as pointed as it seemed when it was first announced, then maybe that will help the banks," said Miller Tabek’s Peter Boockvar in a Reuters interview.

What’s the bank trade?

I think there could be opportunity in the space, but I’m a fan of the smaller community banks, reveals Patty Edwards.

I’m watching Goldman, says Pete Najarian. If it can get above $160 then maybe financials could stage a full turn. But I’d let the Volcker testimony play out. Certainly what is said will be market moving.

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TOPPING THE TAPE: HOMEBUILDERS

The Homebuilders ETF popped on Tuesday after new data showed sales of existing home edged higher in December.

Also, D.R. Horton surprised the Street by posting its first quarterly profit in almost three years.

What’s the sector trade?

I’m bullish on the sector, says Brian Kelly of Kanundrum, and I’d play it with a basket of stocks including Toll , Hovnanian , and DR Horton. Those three, I’m long.

Patterns in the DR Horton chart look good to me, adds Todd Gordon. As long as it hold $12.50 I like it.

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SECTOR TRADE: AUTOS

Ford wowed investors on Tuesday by reporting a 35 percent increase in January sales versus the same month last year. The total number of vehicles sold by Ford in the month totaled 116,534, up from 93,506 last year. Ford also reported that its domestic market share rose 2 percent from a year ago

What’s the auto trade?

The Ford chart looks good, says Todd Gordon, and the Toyota chart looks sickly. Ford has better upside. If we get to $11.50 I think Ford could pop to $12 even $12.50.


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Trader disclosure: On February 2nd, 2010, 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), (BTU), (MSFT), (NUE); Najarian Owns (AAPL) Call Spread; Najarian Owns (AA) Calls; Najarian Owns (AKAM) Call Spread; Najarian Owns (CEPH) Call Spread; Najarian Owns (INTC) Calls; Najarian Owns (MET) Call Spread; Najarian Owns (MS), Is Short (MS) Calls; Najarian Owns (PFE); Najarian Owns (SPF) Calls; Najarian Owns (XLF) Calls; Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM), (UNG), (USO), (BKS); Finerman's Firm Is Short SPX Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC) Preferred, (BAC) Leaps; Finerman Owns (BAC) Preferred, (BAC); Finerman's Firm And Finerman Own (CVS), (FLS), (GOOG); Finerman's Firm Owns (KFT)

For Brian Kelly
Kanundrum Capital Is Long U.S. Dollars vs. Short Swiss Franc
Kanundrum Capital Is Short (EWY)

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Other Relevant Disclosures:
Najarian Owned (CEPH) Call Spread Today


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  Price   Change %Change
DJIA
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S&P 500
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AA
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DHI
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F
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FCX
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GS
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HOV
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MSFT
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7203.T
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TOL
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UPS
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WHR
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X
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SPDR SP HB
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SPDR FIN SEL
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GOOGL
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