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Halftime: New Sign Suggests Rally Out Of Steam?

Stocks remained somewhat unsettled on Wednesday as investors digested new developments and wondered if they eroded the attractiveness of stocks, especially with the S&P near a 4-month high.

Specifically, Wall Street was concerned by commentary aboutinflation out of the Fed meeting as well as news from the White House that business-friendly Larry Summers would step down from President Obama’s economic team.

Adding to the headwinds financials struggled after Deutsche Bank cut estimates on Goldman Sachs and Morgan Stanley. It’s widely believed that the rally could soon run out of steam if financials fail to participate.

What’s the trade?

Instant Insights with the Fast Money traders

The lack of participation in this rally by financials is something that concerns me, says Joe Terranova. As a result we may not get a continued appreciation in the overall equities market. Right now I don’t see anything out there to reverse this negative momentum.

Any financials that needs a lot of trading volume to create profitability are likely facing problems, adds Zach Karabell of RiverTwice. I happen to be longGoldman but only because I think it’s relatively cheap. Broadly, I tend to be short the whole space. And I would not look to the financials for market leadership for the next 3-6 months.

Don't forget that Jefferies has said trading is painfully slow. When I look at the macro-economic headwinds I don’t see any reason for trading volumes to pick up either, says Brian Kelly. As a result I’m short the brokers via IAI.

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COMMODITIES SURGE

Although stocks traded lower the commodity trade ramped into high gear with gold hovering near new record highs; also silver and copper surged as well.

How should you position?

If you’ve been overweight gold , I think it's time to rotate at least some capital out of the precious metal, says Joe Terranova. I'd go into the food space with ag names such as CF and into the energy space with names such as Apache and Hess.

If you’re looking for an under-performer, I’d look at Monsanto which has lagged the ag space, adds Zach Karabell. It’s not a pure play on fertilizer but it’s key to the same theme.

I’d play the space with the junior miners , adds Brian Kelly. That’s where all the M&A action is.

If you're looking at miners I’m only seeing call buying in Newmont, says Scott Nations. The others are mushy. That suggests options investors may not be looking for more upside.

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MARKET BUZZKILL: ADOBE

Adobe shares took a nose dive Wednesday after the software maker issued a weaker than expected outlook for the fourth quarter and the company also reported anemic sales of its creative suite products.

What’s the trade?

I’m a buyer of the sharp sell-off, says Zach Karabell. I happen to think it’s an overreaction. Adobe is trading at a 12 multiple against a group that typically trades in the high teens.

I’m not sure Adobe at 12 times earnings isn’t exactly where it belongs, counters Scott Nations. It’s not clear to me how they intend to grow.

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MICROSOFT RAISES DIVIDEND

Elsewhere in tech, the traders were watching Microsoft, which was the biggest drag on the Dow despite the company’s decision to boost its quarterly dividend by 23% to 16 cents per share.

What’s the trade?

Tech is all about who makes a splash, says Joe Terranova. Apple did it with innovation, Oracle did it with Mark Hurd, IBM did it with M&A. Microsoft is just disappointing.

Microsoft franchises are slow growth franchises, adds Brian Kelly. I wouldn’t touch the stock.

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Trader disclosure: On Sept. 22th, 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), (ARUN), (BMO), (C), (GS), (IBM), (HES), (JOYG), (XBI), (NBR), (NOV), (OXY), (ORCL), (PEP), (POT), (RSH), (SLB), (SU), (SPLS), (RIG), (UPL), (MA), (VRTS); For Scott Nations; Nations owns (MSFT); Karabell owns (FCX), (VALE), (POT), (GS), (AAPL), (RIMM), (BHP)

Brian Kelly
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (SLV)
Accounts managed by Kanundrum Capital own (ORI)
Accounts managed by Kanundrum Capital own (RGR)
Accounts managed by Kanundrum Capital own U.S. Dollars
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital own (POT) calls
Accounts managed by Kanundrum Capital own Swiss Francs
Accounts managed by Kanundrum Capital are short (BCS)
Accounts managed by Kanundrum Capital are short (IAI)
Accounts managed by Kanundrum Capital are short (XLF)
Accounts 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 (HYG)
Accounts managed by Kanundrum Capital are short (STT)

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 Zach Karabell:
River Twice owns (ADBE)
River Twice owns (POT)
River Twice owns (GS)
River Twice owns (VALE)

For James Digeorgia
***No Disclosures***

CNBC.com with wires.

Symbol
Price
 
Change
%Change
S&P 500
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ADBE
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APA
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CF
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GS
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HES
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IAI
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IBM
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MO
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MS
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MSFT
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NEM
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ORCL
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SPDR FIN SEL
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AAPL
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MV J GLD MIN
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