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Have Stocks Finally Found A Direction?

Stocks closed at their highest level in 10 weeks on Monday with the S&P shattering the 200-day, a key technical level.

The S&P also made another important move – it closed above 1,121, the midpoint of the slide from the October 2007 high and the 12-year low hit in March 2009.

The benchmark has not been able to close above this 50 percent retracement since mid-May.

Is this a long-awaited sign that the gains are sustainable? Going forward should you position with a bullish bias?

Instant Insights with the Fast Money traders

Reinforcement for the rally comes from big macro risk-on trades such as oil climbing sharply, muses Tim Seymour. Also, there was volume behind the up move, he adds. The economic data seems to be confirming what earnings told us last week, the recovery is in tact. That should be bullish for resources.

I fully expect to see money managers allocating more capital to equities, says Joe Terranova, especially with the US dollar resuming its down trend. Personally I’m adding to long positions and selling nothing.

If there's a way to be bearish and bullish at the same time that's what I'd be, reveals Brian Kelly. But I'm incrementally more bullish because moves in the fixed income market and currencies market suggest to me that investors are unwinding trades based on a weaker economy and putting on trades that suggest the economy is getting better.

The change in sentiment is likely due from commentary from the Fed, Kelly adds, which has suggested if anything bad happens they will pump more money into the economy. That’s bad for the dollar and good for equities.

However, I can’t completely take off my bear suit, says Brian Kelly. We're also looking at higher oil prices. That may be good for the oil bulls but $90 a barrel won’t be good for the consumer.

Having just popped 8% does the S&P tack on another 10%? The odds of that are very low, adds Oppenheimer's Carter Worth. When stocks recover losses of this magnitude people who had lost money -- and have now recaptured those losses -- tend to be sellers.

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DOES VIX CONFIRM MARKET GAINS?

In an attempt to understand if the market moves are sustainable, OptionMonster Jon Najarian suggests taking a look at action in the Vix over the past few quarters.

On Monday the Vix fell below its 200-day moving average, suggesting some of the near-term fear on the market has diminished.

Since the beginning of May, the VIX has closed below its 200-day MA only twice, both times occurring last week.

"The more times a level is tested, it heightens the significance of the move when you finally do break through," explains Richard Ross, global technical strategist at Auerbach Grayson in a Reuters interview.

What’s the bottom line?

I’m bullish, says OptionMonster Jon Najarian. For all those guys wearing bear suits - it’s got to be getting kind of hot.

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CHART OF THE DAY: OIL BREAKS ABOVE $80

The traders are keeping a close eye on oil which moved sharply higher on Monday and closed above $80 for the first time in 3 months.

What must you know?

Oil is generally a seasonal trade and this is when investors buy crude for the forth quarter, explains Joe Terranova. I think the next stop for oil is $90.

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KINROSS GOLD ACQUISITION

In extended trade shares of Kinross tumbled about 3% after published reports said that the gold miner intended to acquire Red Back Mining in an all-stock deal valued at $7.1 billion.

The combined company would have 10 mines and four development projects in eight countries.

What’s the gold trade, now?

I think it's time to get into the miners, says Tim Seymour. If resources start to rally I think gold becomes attractive as a hedge against inflation and that benefits miners.

I covered my gold short and went long gold , says Brian Kelly. On any hint that the dollar is getting much weaker, then long gold is my trade.

That may be true but I'm seeing clients sell out of their gold position and put that capital into higher beta plays, counters Steve Grasso.

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UNDER THE RADAR: FERTILIZER AND GRAIN STOCKS

With wheat sitting at 23 month highs, is the fertilizer trade the best under the radar commodities play?

What’s the trade?

Potash and Mosaic have both exploded through the 200-day, says Tim Seymour. These are both charts that I think are now buys.

One cautionary note, is that Potash has gone from $84 to $103 in a matter of weeks, counters Zach Karabell on the Halftime Report. There could be more upside but I’d be careful of the momentum trade turning.

Ag tends to be highly correlated to oil reminds, Joe Terranova. Keep that in mind.

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AFTER HOURS ACTION: HERBAL LIFE

Shares of Herbalife popped 10% in extended trade after the company released second-quarter results that outpaced market expectations, boosted by robust volume growth.

The company also raised its quarterly cash dividend by 25 percent to 25 cents. Herbalife, which sells weight-management, nutrition and personal care products, expects third-quarter earnings of between 99 cents and $1.03 a share, and sees sales rising 13 percent to 15 percent in the quarter.

What's the trade?

I don't really like this stock, says Tim Seymour.

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CHARTOLOGY WITH CARTER WORTH

As we mentioned above, strong gains in the market aren't wildy bullish to technical analyst Carter Worth. At current levels he doesn't think stocks have much more room to run.

Get all the details. See his full analysis. Watch the video now!




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Trader disclosure: On Aug 2, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour owns (AAPL), (F), (GOOG), (POT), (BAC), (C); Grasso owns (ASTM), (ABK), (BAC), (BA), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST); Terranova owns (AKAM), (APA), (AXP), (BAX), (BBY), (BMO), (C), (COP), (CREE), (CSX), (CVS), (EMC), (FCX), (GOOG), (GS), (JNPR), (JOYG), (KOL), (MMM), (MOS), (MSFT), (PCP), (PEP), (PFE), (POT), (RIMM), (TER), (SKX), (SU), (UAUA), (WYNN), (XBI); Edwards own (RIMM)

For Brian Kelly
Accounts managed by Kanundrum Capital own (CM)
Accounts managed by Kanundrum Capital own (BMO
Accounts managed by Kanundrum Capital own Swiss Franc
Accounts managed by Kanundrum Capital own (TLT)
Accounts managed by Kanundrum Capital own (BAK)
Accounts managed by Kanundrum Capital own (ORI)
Accounts managed by Kanundrum Capital own (UNG)
Accounts managed by Kanundrum Capital own (PFE)
Accounts managed by Kanundrum Capital are long (JPM)
Accounts managed by Kanundrum Capital are long (GLD)
Accounts managed by Kanundrum Capital are long (OIH)
Accounts managed by Kanundrum Capital are long (RIMM) call spread
Accounts managed by Kanundrum Capital are short the US Dollar

For Steve Grasso
Stuart Frankel & Co and it’s partners own (BAX)
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (DHR)
Stuart Frankel & Co and it’s partners own (DYN)
Stuart Frankel & Co and it’s partners own (ESV)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (LEN)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (SYMC)
Stuart Frankel & Co and it’s partners own (TBT)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (TRV)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)
Stuart Frankel & Co and it’s partners are short (KEG)

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 Patty Edwards
Edwards own (FCX) for clients
Edwards own Gold for clients
Edwards own Platinum for clients
Edwards own (VXX) for clients
Edwards own (AAPL) for clients
Edwards own (PFE) for clients
Edwards own (F) for clients
Edwards own (GOOG) for clients
Edwards own (WMT) for clients
Edwards own (VLO) for clients
Edwards own (AKAM) for clients
Edwards own (WFMI) for clients

For Itay Michaeli
Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from ArvinMeritor, Inc., BorgWarner Inc, Lear Corporation, Magna International Inc.

Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from ArvinMeritor, Inc..

Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from ArvinMeritor, Inc., Borg Warner Inc, Lear Corporation, Magna International Inc in the past 12 months.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): ArvinMeritor, Inc., Borg Warner Inc, Lear Corporation, Magna International Inc.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securities related: ArvinMeritor, Inc., Borg Warner Inc, Lear Corporation, Magna International Inc.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, nonsecurities-related: ArvinMeritor, Inc., Borg Warner Inc, Lear Corporation, Magna International Inc.


For David Riedel
***No Disclosures***

For Mike Khouw
***No Disclosures***

For Jon Najarian
***No Disclosures***

For Carter Worth
***No Disclosures***



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