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Pro Traders: Market About To Encounter Serious Test

The S&P closed higher on Wednesday with stocks erasing early losses and ending in positive territory; however the tone on the Street remained cautious.

Looking at fundamentals, a new report showed New York state business conditions slipped to the lowest level in more than a year, while industrial output rose at a slower rate in August.

Meanwhile, technical traders were preparing for a serious test as the S&P marched toward 1130 – a level of past resistance.

"We are due for a serious test of 1,130 this week,” says Dan Cook, senior market analyst at IG Markets in a Reuters interview. “We are (likely) just taking a pause before that next charge begins."

How should you position now?

Instant Insights with the Fast Money traders

With quad witching on Friday, the current move higher feels like an options expiration squeeze, muses Tim Seymour. I don’t think the rally is for real. I’m dubious for the second half of the month.

The key levels to watch right now are the two preceding tops; the June top of about 1130 and the August top of about 1130, explains Oppenheimer’s Carter Worth on the Halftime Report.

Considering this is now the third time stocks are probing this level the presumption is we remove supply and exceed the level – however only a little, he says. I’d expect the S&P to print 1140 to 1145.

To me it feels like the market wants to levitate to 1131 – 1135, says Guy Adami on Monday's Fast Money. What happens at that point will be very telling. I still bias toward being bearish.

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MARKET BUZZ KILL: OIL

The traders are closely watching oil with the commodity stuck in a range for the summer much like the S&P.

Considering energy is the worst performing sector year to date, how should you play the space?

I’m short the OIH , says Brian Kelly with a stop at $110.50.

Non-performing wells are expected to need permanent plugs, adds Tim Seymour. That bodes well for Hornbeck Offshore and Superior Energy .


As long as oil futures stay within their range I think oil equities will rise, says Joe Terranova.

I’d fade consumer disretionary which has led the S&P and get long energy, the laggard, counsels Carter Worth. I'm particularly interested in Weatherford, Halliburton and Chevron, he says.

Weatherford has exhibited a bearish to bullish reversal, Worth explains. It’s a stock that’s starting to attract capital. Halliburton is also exhibiting characteristics that suggest it’s attracting capital. And Chevron is a yield play.

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JAPAN MOVES TO WEAKN YEN

Japan made a surprise foray into currency markets Wednesday in a move to weaken the yen , which had gained about 10 percent against the dollar this year.

A stronger yen has been bad for companies like Toyota and Sony that are critical to the country's economy.

Japanese officials would not provide a figure for how much yen the central bank sold in the market, and analysts cautioned that the long-term impact would depend on whether, and how, U.S. and European central banks respond.

What's the trade?

This development illustrates why it's important to watch currencies and interest rates, explains Brian Kelly. The move could send safe haven money out of yen and into gold as well as Treasurys.

Also keep the US dollar on your radar, adds Joe Terranova. I expect it to continue to weaken and that bodes well for commodity prices.

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TOPPING THE TAPE: YAHOO

Shares of Yahoo! surged Wednesday on speculation its Alibaba stake could fetch as much $11 billion dollars.

That’s not to say a sale is even on the table.

According to a Reuters report, Chief Executive Carol Bartz says that Alibaba Group "constantly" approaches the Internet search company about repurchasing its stake in the Chinese Internet firm, but that Yahoo has no plans to sell its shares

What should you make of it?

I think the odds of Yahoo! selling its stake in Alibaba are very low, says Lou Kerner of Wedbush. Also it’s important to note that in a private market like China -- Yahoo! won’t be able to fetch the same kind of valuations they can here. Personally, I value Alibaba at $4 billion.

I can’t help but wonder if Microsoft makes another run at Yahoo!, muses Patty Edwards.

Read More:

> Yahoo CEO: No Interest in Selling Alibaba Stake

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TAKE YOUR POSITION: RIMM

Shares of Research In Motion closed modestly higher one day ahead of its quarterly earnings release.

According to Street chatter, the company will need to put up strong shipment numbers and a robust outlook to dispel the growing naysayer sentiment that has hammered its share price.

Investors will be scouring the company's guidance for clues as to how well the new BlackBerry Torch is faring ahead of a wider rollout.

The company is also expected to update the market on plans for a tablet device that will join a suddenly congested market chasing Apple's iPad.

What’s the trade?

I’m bullish, says Steve Cortes. There are 4 reasons to buy: it’s the most hated stock on the board, it’s been deeply oversold, it’s still the dominant in EM, and it’s becoming more attractive as an M&A candidate.

I'm bullish Apple , adds Joe Terranova. I think it trades well north of $300.

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MARKET BUZZKILL: U.S. STEELMAKERS

One day after steelmaker Nucor warned of a general slowdown in the industry, AK Steel warned that it expects to post an operating loss in the third quarter due to higher raw material and operating costs.

What’s the trade?

I’m not sure just how meaningful these developments are, says Jon Najarian. They’re more backward looking than anything else.

To me it’s just another sign that the economy is slowing down, says Brian Kelly.

Most steel names look broken, says Joe Terranova. Steel Dynamics is the only potential buy, but I’d only do it with a gun to my head.

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TOPPING THE TAPE: MASTERCARD

Shares of MasterCard surged on Wednesday after the credit card processor announced a $1 billion share buyback and said profit will rise at least 20 percent this year, more than some analysts had predicted.

What’s the trade?

I’m a buyer, says Joe Terranova. I think it challenges $224.



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Trader disclosure: On Sept. 15th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Finerman’s firm owns (IBM); Finerman’s firm owns (ORCL); Finerman’s firm owns (HPQ); Finerman’s firm owns (JPM); Finerman’s firm owns (BAC); Finerman’s firm owns (BBY); Finerman’s firm owns (GLW); Seymour owns (AAPL); Seymour owns (MSFT); Terranova Owns (APA), (AAPL), (ARUN), (BMO), (C), (DO), (EOG), (FCX), (FTO), (XBI), (GS), (HES), (IBM), (JOYG), (NBR), (NOV), (OXY), (ORCL), (PEP), (POT), (RSH), (GLD), (SLB), (SWN), (SU), (SPLS), (RIG), (UPL); Jon Najarian owns (AAPL) call spreads; Jon Najarian owns (ARST) calls; Jon Najarian owns (CSCO) call spreads; Jon Najarian owns (RHT) call spreads

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)

For Brian Kelly
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (ANDE)
Accounts managed by Kanundrum Capital own (RIMM)
Accounts managed by Kanundrum Capital own (ALK)
Accounts managed by Kanundrum Capital own (TLT)
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital are short (OIH)
Accounts managed by Kanundrum Capital are short (IAI)
Accounts managed by Kanundrum Capital are short (XLF)
Accounts managed by Kanundrum Capital are short (BA)

For Tim Seymour
Seygem Asset Management owns (MSFT)
Seygem Asset Management is short (FCX)
Seygem Asset Management owns (BAC)
Seygem Asset Management owns (INTC)

For Patty Edwards
Edwards owns (PM) for clients
Edwards owns (KFT) for clients
Edwards owns (KMB) for clients
Edwards owns (TAL) for clients
Edwards owns (LEG) for clients
Edwards owns (WDFC) for clients
Edwards owns (JNK for clients
Edwards owns (LQD) for clients
Edwards owns (SPY) for clients
Edwards owns (VXX) for clients
Edwards owns (TIF) for clients
Edwards owns (JCG) for clients
Edwards owns (MSFT) for clients
Edwards owns (JPM) for clients
Edwards owns (C) for clients
Edwards owns (BAC) for clients
Edwards owns (HPQ) for clients
Edwards owns (CSCO) for clients
Edwards owns (INTC) for clients
Edwards owns (GLW) for clients
Edwards owns (V) for clients
Edwards owns (AEO) for clients
Edwards owns (SBUX) for client

For Lou Kerner
Wedbush Securities makes a market in (YHOO)

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

For Richard Bernstein
***No Disclosures***

For Pete Dawkins
***No Disclosures***

For Mike Khouw
***No Disclosures***

For Peter Boockvar
***No Disclosures***

For Carter Worth
***No Disclosures***


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