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Halftime Report: Are Banks Overbought?

Citi’s massive run up this week has come to a screeching halt but will that derail the bank comeback that has led this market to new highs for the year?

That's the billion dollar question especially now that banks are the best performing sector of the S&P. Take a look:

Top 5 S&P Sectors, 1 Month
Financials: 12%
Cons. Disc.: 10%
Industrials: 9%
Materials: 7%
Tech: 7%

Is the sector overbought? Or is there still time to hop on this trade?

Instant Insights with the Fast Money traders

For the past 7 months the Bank ETF has been stuck in a range between $14 and $15.50, explains Bill Strazzulo of Bell Curve .

If the XLF can break above $15.50, patterns in the chart suggest it could go to $16.75, he says. But if it can’t on the downside it could slide all the way down to $11.50.

If you want to play the space, I think the play is long large cap banks, says Steve Grasso of Stuart Frankel. They have excess capital and they've paid back the TARP. You can't say that about the regional banks.

I agree, echoes Patty Edwards of Storehouse. There’s a lot of deal chatter about big banks looking to take out a regional banks, she says, but don’t do fools work. What are the odds you get that right? I'm a value investor and I think it’s much smarter to get long JPMorgan or Goldman.

I’m seeing put buying in financials and huge put buying in Citi, says Scott Nations, but I don't think it's bearish as much as it's investors protecting their long positions.

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BULL’S LAST GASP

Looking at the broader market, the S&P pared an earlier advance on Friday as investors grappled with mixed signals about the economic outlook.

What’s the trade?

I’m a seller in front of 1155 on the S&P, says Bill Strazzullo. I’m looking for 1125 and maybe even 1090.

The last time the S&P was this overbought it went from 1150 to 1050, says Scott Nations of NationsShares. Also the Vix is higher on a Friday. Both factors are bearish and I’m a seller.

I’m a buyer, counters Steve Grasso.



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TOPPING THE TAPE: COMMODITIES

In the commodities space, the traders are closely watching the action in fertilizer names which soared higher after Potash sharply raised sales expectations.

What’s the trade?

The whole space is moving, explains Steve Grasso. I have CLF on my radar.

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TOPPING THE TAPE: RETAIL

The RTH traded higher on Friday after the latest data showed retail sales rose unexpectedly last month despite heavy snow storms, bolstering hopes of a sustainable economic recovery.

What’s the trade?


The RTH has outperformed the broader market since the beginning of January. The short term trade is to buy in front of $94 and look for a move to $101. And it could even go to $108.

And if you want to play stocks in the space, I’m a buyer of JCrew on the downdraft, adds Patty Edwards of Storehouse.

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EAR TO THE WALL: LEHMAN

A new report investigating the collapse of Lehman suggests more headaches for the former CEO Dick Fuld.

The examiner found evidence for breach of fiduciary duty against Fuld for not investigating whether the company was deceiving investors.

At issue is a program known as Repo 105 – in which Lehman would put assets up as collateral while agreeing to buy them back at a later time.

Although the repo market is perfectly legal – and in fact an important mechanism in the financial system – at issue is how Lehman used the program.

Specifically, the report finds they didn’t disclose the use of their program, properly.

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CALL THE CLOSE

Steve Grasso: I’m a buyer.

Bill Strazzullo I’m a seller in front of 1155. I’m looking for 1125 and maybe even 1090 in the S&P.

Patty Edwards: I’m a buyer of JCrew on the downdraft.

Scott Nations: The last time the S&P was this overbought it went from 1150 to 1050. Also the Vix is higher on a Friday. That’s bearish and I’m a seller.


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Trader disclosure: On March 12, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Grasso Owns (TSO), (AAPL), (ABK), (ASTM), (BA), (BAC), (BGP), (C), (COST), (CSCO), (PFE), (PRST), (V), (WMT), (FAZ); Edwards Owns (ARO); Edwards Owns (BAC) For Clients; Edwards Owns (GS) For Clients; Edwards Owns (JPM) For Clients; Edwards Owns (MS) For Clients; Edwards Owns (WFC) For Clients; Nations's Firm Trades And Has Positions In S&P Options; Gordon Is Short Australian Dollar; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leap; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm And Finerman Own (GOOG); Finerman's Firm And Finerman Own (JPM); Finerman's Firm Owns (SKS), (TJX); Finerman's Firm Is Short (USO); Finemran's Firm And Finerman Own (WFC) Preferred; Seymour Owns (AAPL), (BAC), (INTC); Strazzullo Is Short (SPY) As A Hedge; Strazzullo Owns (GLD)

For Tim Seymour
Seygem Asset Management Owns (POT)

For Joe Terranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (GOK)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)

Virtus Investment Partners Owns More Than 1% Of (XLI)


CNBC.com with wires

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S&P 500
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C
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CLF
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GS
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POT
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VIX
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SPDR FIN SEL
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JPM MLP ETN
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MV RETAIL
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