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Halftime Pt. 1: Will Stock Market Find Floor At S&P 1040?

Wednesday, 25 Aug 2010 | 1:21 PM ET

It seems that technicals continue to matter most in this market with investors closely watching the action in the S&P.

On Wednesday, the S&P 500 slid down to 1,040, a key technical level, then to the relief of the bulls it bounced off the lows.

The 1040 level has been a level of consistent support – providing a floor for stocks not only now but also in early June, as well as in May and back in February.

How should you position now?

Instant Insights with the Fast Money traders

I think the downside in equities is protected because of the sharp rotation into the bond market, says Joe Terranova. (In other words so much more money is now in bonds investors are less likely to get spooked by negative news and sell.) I suspect we’re in a sideways market and now at the bottom of the range.

As a result I’d consider getting re-exposed to stocks you find attractive – for me that’s technology, Terranova adds. At these levels I’m interested in dabbling in Microsoft , Qualcomm, and Teradyne.

I’m keeping an eye on 1050 as a key level in the S&P, adds Patty Edwards.

If we close below 1050 it could indicate a retest of the July 1st lows of 1011. I don’t like the technicals and I don’t agree with Joe. I’m largely on the sidelines and my bias is lower - there’s probably a little more downside.

I’m seeing a policy bid in the market, explains Brian Kelly. In other words, investors are betting that the worse the news gets the better chance that we get a response out of Washington. That’s why we’re starting to see some strength.

I expect that the market is stuck in a range through Labor Day, adds Jon Najarian. If you're in this market make sure you take profits quickly when you have them.

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TECH LEADS MARKET HIGHER

The traders are keeping a close eye on tech , which seems to be gathering strength into the afternoon. Reports of deals around Apple TV are giving investors new hope.

According to published reports, Apple is in talks with television networks in the hope of creating a service that would allow iTunes users to rent their favorite television programs for just $0.99 per episode.

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What’s the trade?

With Apple such a large percentage of the Nasdaq when you see Apple move , so goes technology explains Brian Kelly.

Elsewhere in the space I’m watching HP and Dell spar in their attempts to acquire 3Par , says Jon Najarian. Technology investors and analysts warn of valuations taking a back seat to egos. A Reuters survey found most analysts expect another bid or two, and a final price of around $29 per share -- nearly three times Dell's first offer of $18 a share.

I’m a little concerned about Dell, says Patty Edwards. Aside from the acquisition, they also launched a new phone that absolutely nobody is talking about. I wish they’d stick to their knitting and just get that right.

In the space I think HP is a much better place to put money to work than Dell, adds Joe Terranova.

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TOPPING THE TAPE: HOME BUILDERS

For the second day in a row, the market grappled with weak housing numbers. On Wednesday the latest info showed sales of new homes dropped to their lowest level since the government started tracking the numbers more than four decades ago.

But despite the dismal results, the Homebuilders ETF traded in the green on Wednesday.

Is the bottom finally in?

If you believe in a housing recovery, I’d play it with long positions in Armstrong and AO Smith, says Joe Terranova.

If the government boosted the real estate with tax incentive once before - why can't they can do it again, muses Brian Kelly.

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MARKET BUZZKILL: BANKS

Poor housing data dragged downbanks on Wednesday with several names hitting new 52-week lows.

How should you trade the space, now?

I’m not willing to go long banks right now as a value trade, says Patty Edwards. Foreclosures are sitting at around 4.6% of total loans outstanding and that’s an issue.

If you want to play the space, I’d establish a long position in Goldman Sachs, counsels Joe Terranova.

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TOPPING THE TAPE: AMERICAN EAGLE

Teen retailer American Eagle topped the tape on Wednesday after the stock traded higher despite a quarterly report which showed a 66 percent drop in its second-quarter net income. The company also said it had to slash prices on summer items and issued a weak forecast for the current back-to-school quarter.

How do you play the eagle?

I think the gains on Wednesday are short covering, muses Patty Edwards. Nothing more than that.

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CHART OF THE DAY: OIL BOUNCES

The traders are keeping a close eye on crude oil which has been drifting lower for weeks but then bounced off $70 – a level of past support.

What’s the trade?

The oil market appears to be challenged right now due to rising inventories, explains Joe Terranova. But I think there’s a floor in crude because of all the geo-political issues. I don’t expect oil to drop much lower than $65.

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UNUSUAL ACTIVITY: VISTAPRINT

Jon Najarian has spotted unusual options action in VistaPrint .

A large amount of call buying suggest to Najarian the stock could have significant upside. He’s long both September and October calls.



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Trader disclosure: On Aug 25, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova owns (BM), (GOOG), (MSFT), (QCOM), (TER), (BRCM), (AXP), (C), (MRVL), (BMO), (V), (POT), (GLD), (FCX), (APA), (SU), (XBI)

For Brian Kelly
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (SLV)
Accounts managed by Kanundrum Capital own U.S. Dollar
Accounts managed by Kanundrum Capital own (TBT)
Accounts managed by Kanundrum Capital own (ANDE)
Accounts managed by Kanundrum Capital own Swiss Franc
Accounts managed by Kanundrum Capital are short (XLF)
Accounts managed by Kanundrum Capital are short (IAI)
Accounts managed by Kanundrum Capital are short (RSX)
Accounts managed by Kanundrum Capital are short (AFL)
Accounts managed by Kanundrum Capital are short (MCO)
Aounts managed by Kanundrum Capital are short Mexican Peso
Accounts managed by Kanundrum Capital are short U.K. Pound
Accounts managed by Kanundrum Capital are short Australian Dollar
Accounts managed by Kanundrum Capital are short (RTH)

For Patty Edwards
Edwards own (HD) for clients
Edwards own (GOOG) for clients
Edwards own (BAC) for clients
Edwards own (WFC) for clients
Edwards own (GE) for clients
Edwards own (GLD) for clients
Edwards own (AAPL) for clients
Edwards own (HD) for clients
Edwards own (GLW) for clients
Edwards own (SYT) for clients

For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (DRYS)
Virtus Investment Partners own more than 1% of (EXR)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (XLK)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)

CNBC.com with wires.

  Price   Change %Change
NASDAQ
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S&P 500
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AEO
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AOS
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AHPI
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4331
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GS
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HPQ
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MSFT
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PAR
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QCOM
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TER
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VPRT
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SPDR SP HB
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SPDR TEC SEL
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AAPL
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