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As S&P Nears Resistance, Will Rally Run Out Of Steam?

Thursday, 9 Sep 2010 | 5:28 PM ET

Stocks melted higher on Thursday after better than expected economic data renewed interest in riskier assets.

New claims for unemployment insurance fell more than expected last week to their lowest level in two months and the U.S. trade deficit narrowed more than forecast in July with exports shooting to their highest level since August 2008.

Investors took the news to mean the economy is, in fact, growing – and at a faster pace than some pundits anticipated.

However, the bullish fundamentals may be no match for the challenging technicals.

The S&P is trading near levels of extreme resistance. It closed at the 100-day, which is 1103 and within striking distance of the 200-day at 1115.

Although bulls say this move higher has been slow and steady the bears argue that to get through resistance, the market needs volume and that’s nowhere to be found.

How should you position now?

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At these levels I think the market is a little toppy, says Guy Adami. I’ve been bearish and remain bearish until we close above 1135 in the S&P, he adds. How you trade at these levels all boils down to your view of the broad market. Mine is that we’re at the upper end of the range and I’d look to take profits.

Sometimes when you put your offensive on the field all you hope all they do is maintain field position, says Joe Terranova. That’s what I think is happening right now. I think we’re looking to maintain field position.

I expect the market to drift higher, says Tim Seymour. I think we test 1115 in the S&P, the 200-day. But at that level I’d start to take profits and regroup because you’ll probably get an opportunity to buy again, lower.


Right now, we’re sitting between the 100-day and 200-day moving average, adds Steve Grasso on the Halftime Report. Personally, I’ve got to see the market close above 1131 before I can feel excited.

1120 is the key level I'm watching, says Scott Nations. That’s halfway back between the April high and the July low. I’m a buyer into 1120 but then I'd take profits. I don’t see the market having enough momentum to make a really big move – say to 1200.

I’ve been very constructive on the market but now I’d take profits on all my longs, says Steve Cortes. I think the market looks frothy.

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WILL EUROPEAN BANKS RUIN RALLY?

Some Wall Street pundits are speculating that European banks could be the catalyst that derails this rally. After dodging the latest wave of debt worries, Deutsche Bank tanked after published reports suggested the firm was considering an $11 billion dollar share sale.

What’s the trade?

I would take this as an opportunity to buy if you think the new regulations won’t be as bad as expected, says Tim Seymour.

When the US banks did those large capital raises -- that was the bottom. I wonder if that will also be the case in Europe, says Karen Finerman.

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OIL REVERSAL

The traders are closely watching the action in crude after the spot price did an about-face after this morning's numbers on u.s. petroleum inventories.

By the close crude slipped below the psychologically important $75-mark, despite oil stockpiles falling more than expected.

What’s the trade?

I think machines drove the tape on Thursday because of the light volume we saw due to the Jewish holiday, says Joe Terranova. I don’t think it’s a reversal of any upside trend.

If you’re playing JoyGlobal, action in the stock leads me to expect a pullback, says Guy Adami. In fact, we could see a pullback in the entire space.

I’m a seller of the move higher in BP , says Tim Seymour.

However, BP debt has bounced back, reminds Karen Finerman. That suggests investors believe the possibility of something really terrible happening to BP is off the table.

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MCDONALD’S FALLS

Looks like McDonald's is not selling as many "Royale with Cheeses" as it used to. The world's largest fast food chain dropped on Thursday from an all-time high after missing sales estimates in Europe.

What’s the trade?

The pullback in McDonald’s looks like an opportunity to me, says Guy Adami.

Valuations in McDoanld’s look rich to me, counters Joe Terranova. Also the strength hasn’t been in their core business; it’s in smoothies and breakfast sandwiches. I’m cautious.

At 17.5 times earnings, I found the valuations rich too and pared my position recently, says Karen Finerman.

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ADOBE SPIKES AFTER APPLE RELAXES APP RULES

Tech investors have been closely tracking the ongoing conflict between Adobe and Apple - a conflict that’s prevented much of Adobe's web software to run on iPhones and iPads.

But both stocks traded in the green after an Apple press release hinted at a resolution.

What’s the trade?

My first reaction is that when Apple gives even an inch there’s trouble brewing, muses Brian Kelly. It suggests to me that rival Android apps are starting to gain traction. I’d play it long Motorola.





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Trader disclosure: On Sept. 9th, 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 Merc; Terranova Owns (APA), (AXP), (ARUN), (AAPL), (BMO), (RSH), (FCX), (GS), (IBM), (JOYG), (MRVL), (ORCL), (C), (POT), (GLD), (XBI), (SU), (X), (UPL), (SPLS), (OXY), (QCOM)

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 (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 (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 (XLB)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLF)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)
Virtus Investment Partners own more than 1% of (DLUEY)
Virtus Investment Partners own more than 1% of (DRYS)

Brian Kelly
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (ALK)
Accounts managed by Kanundrum Capital own (RAX)
Accounts managed by Kanundrum Capital own (DRIV)
Accounts managed by Kanundrum Capital own (ORI)
Accounts managed by Kanundrum Capital own U.S. Dollar
Accounts managed by Kanundrum Capital own Swiss Franc
Accounts managed by Kanundrum Capital own Japanese Yen
Accounts managed by Kanundrum Capital is short (XLF)
Accounts managed by Kanundrum Capital is short (IXG)
Accounts managed by Kanundrum Capital is short (MCO)
Accounts managed by Kanundrum Capital is short (IAI)
Accounts managed by Kanundrum Capital is short (AFL)
Accounts managed by Kanundrum Capital is short the Euro
Accounts managed by Kanundrum Capital is short the Australian Dollar
Accounts managed by Kanundrum Capital is short the British Pount

For Jamie Baker
JPMorgan Chase owns 1% of (LCC) Shares outstanding

(LCC), (ALK) (AAI) are investment banking clients of JPMorgan Chase

An employee of JPMorgan Chase sits on the board of (ALK)

For David Riedel
***No Disclosures***

For Jon Najarian
***No Disclosures***

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  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

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