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Kass: Last 55 Points of S&P Rally Is Probably Short Covering

Friday, 3 Sep 2010 | 1:49 PM ET

Some investors may be positioning for the market to break out, but famed strategist Douglas Kass is not one of them.

Much of the recovery in the Standard & Poor's 500 Index is likely short covering, said Kass, founder and president of Seabreeze Partners on Friday's "Fast Money Halftime Report."

That suggests the upside from here is limited.

Although Kass called for gains last week and recommended buying—the call was based on the belief the market is range bound and at the time stocks were approaching their trough.

"We're back to buying the dips and selling the rips. It's going to be a marvelous environment for trading. A less than marvelous environment to invest in."

Looking at reasons behind the market malaise, Kass tipped his hat to Charles Dickens and said investors are caught in a "tale of two markets."

"It's the best of times for large corporations," he explained. "They're flushing cash. They're operating with the best profit margins in history. But it's the worst of times for the consumer, especially the under employed."

Time to Be Bullish?
Discussing whether it's time to be bullish, with Doug Kass, Seabreeze Partners Mgmt.

The money manager said there's been a "structural increase" in unemployment and thinks the next 10 years will be known as the "decade of the temporary worker." The US has regained just 8 percent of jobs lost since the end of the Great Recession, despite having regained 75 percent of gross domestic product lost over the same time period, he noted.

It does seem as though Kass has a knack for reading the market. Less than a week before the S&P 500 hit a generational low of 676 on March 9, 2009, Kass went on CNBC and predicted the bottom. On July 6, 2010, he said the market had made its lows for the year and so far, that has also proved to be true.

"We neither in the spring of hope nor the winter or despair," said Kass in another reference to Dickens' "Tale of Two Cities."

The best way to trade this market, he said, is "buying dips and selling rips."

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Trader disclosure: On September 3rd, 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 (APA), (AAPL), (BMO), (FCX), (GS), (IBM), (MRVL), (QCOM), (OXY), (SU), (XBI), (C), (POT), (GLD), (TBT); Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST); Jon Najarian owns (GS), short calls; Jon Najarian owns (X), short calls; Jon Najarian owns (FAS), short calls; Jon Najarian is short (ULTA); Kinahan owns (WFC)

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