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Halftime Pt 1: Shorts Losing Interest?

Stocks gained sharply on Tuesday with the Dow higher by triple digits, after earnings season started with a bang.

Investors took results from Alcoa and CSX as signs the recovery might not have been derailed, after all.

In addition to the fundamentals, the Fast Money desk can't help but wonder if Tuesday's gains also have something to do with the fact that shorts fled stocks in advance of earnings season. Take a look:

Company Short Interest a/o June 30th
Exxon (XOM) down 60%
AT&T (T) down 18%
Citigroup (C) down 13%
Ford (F) down 6%
Source: 247wallstreet.com

What should you make of it?

Instant Insights with the Fast Money traders

All the stocks listed above have strong balance sheets; I take this to mean that investors believe money is going to rotate into quality, says Joe Terranova. Junk rallied in the first half and I think quality rallies in the second half. My play is long Hewlett-Packard, a quality stock that I think is currently overlooked.

I’m also a buyer of quality, adds Patty Edwards, I’d look at Kraft.

The data above suggests to me that investors who were smart enough to be short last month were also smart enough to cover their positions, muses Jon Najarian. Many of the stock listed above have already moved higher. But that doesn’t mean the shorts won’t reload.

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GLASS HALF FULL?

As mentioned above stronger than expected results from Alcoa triggered sharp gains in the Dow. As the largest U.S. aluminum producer some investors consider Alcoa a bellwether for the U.S. economy.

Adding to the tailwinds CSX , the first major U.S. railroad, also posted higher than expected profits.

"High expectations that this trend (of strong earnings) will continue is bringing the risk back in the market," explains Peter Cardillo, chief market economist at Avalon Partners in a Reuters interview.

How should you position now?

Alcoa isn’t the only metals company to report strong results, explains Patty Edwards. I was impressed by the recent earnings out of South Korea based POSCO . I think POSCO is a very interesting story and I see strength and momentum in South Korea.

In the wake of Alcoa, I’d play Schnitzer and Steel Dynamics, counsels Jon Najarian.

I’d look at Freeport McMoRan, says Joe Terranova. Alcoa results suggest demand isn’t falling off the side of a cliff for base metals. And FCX has been under-performing.

And looking at the big picture, I think we’re seeing a change in sentiment in the market, he muses.

I just can't feel bullish; POSCO did report great earnings but they warned they next quarter is going to be lower because of weaker steel demand, and they’re not alone, says Brian Kelly. Although the markets disagree with my view right now I wouldn’t get too excited.

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MARKET BUZZKILL: APPLE

Apple came under pressure again Tuesday with the stock sliding more than 8% since the release of it’s iPhone 4.

As we first told you yesterday, jitters are growing about this stock after Consumer Reports said it will not recommend the new iPhone 4 to buyers after testing the device.

The latest chatter on the Apple blogs suggests Apple may have to recall the new gadget though most analysts say a recall is highly unlikely.

How should you trade?

I’d wait for a much lower price before I established a new position in this stock, counsels Jon Najarian.

I might consider nibbling at Apple right here, admits Patty Edwards. When they fix the problem I think that’s probably the time to buy.

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BP BLUES


BP experienced big intraday swings; it traded lower around lunchtime after having led the sector higher earlier in the session.

What should you make of it?

I think the trade is long Anadarko , says Joe Terranova. They don’t have the reputation risk that BP is facing.

It seems to me that the market is coming to their senses, says Brian Kelly. I think word out on Monday that BP plans to sell assets is very negative. The stock should not have rallied on that news.

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BIGGEST MOVERS: BANK STOCKS

Financials rallied sharply on Tuesday perhaps because widely followed investor Bruce Berkowitz raised his stake in AIG and also disclosed a new stake in MBIA .

What should you make of it?

It seems to me his investment is a bet on the overall economy, muses Joe Terranova. I think the trade right now is long KCE; it’s and ETF whose top few holdings include Goldman , Morgan and State Street.

I can’t get my arms around AIG, says Patty Edwards. Bruce Berkowitz is welcome to it.


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Trader disclosure: On July 13, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Jon Najarian Owns (SCHN), Is Short (SCHN) Calls; Jon Najarian Owns (STLD), Is Short (STLD) Calls; Jon Najarian Owns (BP), Is Short (BP) Calls; Kelly Owns (BP) Puts; Kelly Is Short (GS);Terranova Owns (GOOG), (APC), (GMCR), (MYL), (BAC), (ABT), (AXP), (HES), (AMZN), (SUN), (SMH), (MRVL), (ADI), (EMC), (CVS), (AKAM), (ADBE), (MON), (KCE); Terranova Owns (FCX) July Calls

For Patty Edwards
Edwards Owns (FCX) For Clients
Edwards Owns (GLD) For Clients
Edwards Owns (BA) For Clients
Edwards Owns (C) For Clients
Edwards Owns (MS) For Clients
Edwards Owns (JPM) For Clients
Edwards Owns (WFC) For Clients
Edwards Owns (AAPL) For Clients
Edwards Owns (MSFT) For Clients
Edwards Owns (GOOG) For Clients
Edwards Owns (YHOO) For Clients
Edwards Owns (DO) For Clients
Edwards Owns (XOM) For Clients
Edwards Owns (F) For Clients
Edwards Owns S&P 500 For Clients
Edwards Owns Nasdaq 100 For Clients
Edwards Owns Gold For Clients
Edwards Owns Silver For Clients

For Brian Kelly
Accounts Managed By Kanundrum Capital Own (GLD)
Accounts Managed By Kanundrum Capital Own (NWL)
Accounts Managed By Kanundrum Capital Own (BIG)
Accounts Managed By Kanundrum Capital Own (GME)
Accounts Managed By Kanundrum Capital Are Long U.S. Dollar
Accounts Managed By Kanundrum Capital Are Short (FXI)
Accounts Managed By Kanundrum Capital Are Short (EWA)
Accounts Managed By Kanundrum Capital Are Short (EWI)
Accounts Managed By Kanundrum Capital Are Short (NATI)
Accounts Managed By Kanundrum Capital Are Short (KMX)
Accounts Managed By Kanundrum Capital Are Short (WYNN)
Accounts Managed By Kanundrum Capital Are Short (RSX)
Accounts Managed By Kanundrum Capital Are Short (AMZN)
Accounts Managed By Kanundrum Capital Are Short (FCX)
Accounts Managed By Kanundrum Capital Are Short (HIG)
Accounts Managed By Kanundrum Capital Are Short (MET)
Accounts Managed By Kanundrum Capital Are Short (CLF)

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 (CASS)
Virtus Investment Partners owns more than 1% of (LDR)
Virtus Investment Partners owns more than 1% of (LPHI)
Virtus Investment Partners owns more than 1% of (MGRC)
Virtus Investment Partners owns more than 1% of (XLB)
Virtus Investment Partners owns more than 1% of (XLP)
Virtus Investment Partners owns more than 1% of (XLY)
Virtus Investment Partners owns more than 1% of (XLI)
Virtus Investment Partners owns more than 1% of (XLK)
Virtus Investment Partners owns more than 1% of (XLU)
Virtus Investment Partners owns more than 1% of (SUBK)
Virtus Investment Partners owns more than 1% of (WDFC)
Virtus Investment Partners owns more than 1% of (YDNT)
Virtus Investment Partners owns more than 1% of (DRYS)

For Matt Burnell
Wells Fargo Securities Or Affiliates Managed Or Co-Managed A Public Offering For (MS), (GS) In Past 12 Months
Wells Fargo Securities Or Affiliates Received Investment Banking Compensation From (MS), (GS) In Past 12 Months
(MS), (GS) Is Or In Past 12 Months Was An Investment Banking Client Of Wells Fargo Securities
(MS), (GS), Is Or In Past 12 Months Was A Client of Wells Fargo Securities (Non-Investment Banking, Securities-Related Services)
Wells Fargo Securities Received Non-Investment Banking Compensation From (MS), (GS) In Past 12 Months
Wells Fargo Securities Or Affiliates May Have A Significant Financial Interest In (MS), (GS)



CNBC.com with wires

Symbol
Price
 
Change
%Change
DJIA
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S&P 500
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AA
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AFF
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APC
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BP.
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CSGN
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FCX
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GS
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HPQ
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KCE
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MDLZ
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MBI
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MS
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549
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SU
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STLD
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STT
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SPDR FIN SEL
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AAPL
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