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Halftime Pt 1: Ignore Bernake, Listen to Caterpillar?

Thursday, 22 Jul 2010 | 1:18 PM ET

While Ben Bernanke says he's "unusually uncertain" about the recovery some major companies don’t appear to be.

Both the S&P and Dow rallied sharply on Thursday after major economically sensitive companies, including UPS and 3M, reported strong revenues, easing investor concerns about future growth.

Perhaps most noteworthy, Caterpillar absolutely wowed the Street with steller profits and outlook. Cat said orders outpaced shipments to dealers, and that they must ramp up production to keep up with demand.

How should you position with such a strong divergence between the Fed Chairman and Corporate America?

Ignore Ben, Listen To Caterpillar?
The Fast Money team looks at market moves after Ben Bernanke said he's 'unusually uncertain' about recovery while Caterpillar says it can't keep up with demand. Also a preview of Microsoft earnings, with Heather Bellini, ISI Group analyst.

Instant Insights with the Fast Money Traders

I have to admit this tape leaves me scratching my head, admits Guy Adami. The market move is extraordinarily impressive. However, when I look at the results from Caterpillar I can’t help but think the stock should be trading even higher. Now I’m watching the Vix ; if it stays above 23.5, the 200-day moving average, I remain bearish.

It's important to note there was no volume on Thursday, reminds Steve Grasso. All the 'up' days have lacked volume and therefore conviction.

From a technical perspective, I’d want to see the S&P pop above 1100 before I could feel that the market is moving with any kind of conviction, he explains. Around 1065 I’d start nibbling but 1100 has been resistance. As we approach that level I’m a seller. Don’t forget the 200-day is at 1112; and that’s likely a point of extreme resistance.

I have to admit that Caterpillar knocked a leg out from under my bearish case, says Brian Kelly. But Caterpillar results tell me we have a bifurcated economy; Anybody who can export to Asia is doing phenomenal – such as Caterpillar. I’m a buyer of companies that make things Asia wants.

Thursday's rally is a cry-fest for the bears, adds Jon Najarian. I’m bullish. I point to Union Pacific, he says. They’re showing strong shipments of autos, energy products and more. As for Caterpillar I’d expect the stock to boom over the next few weeks after the comments about needing to ramp up to meet all the demand.

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MICROSOFT RALLIES TAKING TECH HIGHER

Shares of Microsoft staged a pre-earnings rally up sharply ahead of the company’s earnings report due after the bell, Thursday.

Meanwhile the Street is chattering about a report in the TheDailyBeast.com which says “Senior Microsoft executives, disenchanted with the company's stagnant stock, have been secretly discussing how to kick Chief Steve Ballmer, and maybe the board, to the curb.”

What’s should you make of it?

Looking at the options action, I’m seeing calls trading at a ratio of 2 to 1, says Jon Najarian. It’s a very bullish tell.

I’m also bullish Microsoft; it could pop on earnings, says Heather Bellini of ISI Group. I have a ‘Buy” rating on the stock with a $39 price target however for the stock to have a sustained rally I'm looking to hear about their mobile strategy and their tablet strategy at their upcoming shareholder meeting.

My clients sell Microsoft into any rally, so yes it’s due for a pop, but every time it rallies it’s met with an onslaught of selling, adds Steve Grasso.

As for the conjecture around Ballmer - it's been out there for the past 3-5 years but I don’t think there’s anything brewing that’s imminement, adds Bellini.



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Trader disclosure: On July 22, 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), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Kelly owns (BP) puts; Kelly is short (GS); Jon Najarian owns (AAPL) calls; Jon Najarian owns (BIIB) and (BIIB) calls; Jon Najarian owns (SNDK) calls; Jon Najarian owns (BIDU); Jon Najarian owns (JBLU); Grasso owns (ASTM), (ABK), (BAC), (BA), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST)

For Brian Kelly
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For Heather Bellini
ISI does and seeks to do business with MSFT and has received non-investment banking compensation in the past 12 months.

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