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Halftime: Why Didn’t M&A Lift Market?

Both the Dow and S&P traded lower Monday, with investors taking profits in the wake of yet more M&A frenzy.

In fact, $10.5 billion in world wide M&A was announced this Monday, making it the biggest day for M&A activity since the $26.3 billion announced on August 16th.

Why didn’t the M&A lift the market?

Instant Insights with the Fast Money traders

It’s really quite surprising these deals didn’t lift the market, muses Pete Najarian. But that may be because of the explosive move higher we had on Friday. Of course, there's no denying that gold is higher on Monday and that might be a concern. If you’re establishing long positions here, I’d also buy puts for protection.

Other than the tremendous amount of M&A, there’s really nothing going on in the market, adds Steve Grasso. And it seems the market is getting immune to M&A. My clients are saying they don’t see any real reason for the S&P to break above 1150.

Perhaps the headwinds are due to the move out of Moody’s which cut its rating on Anglo Irish Bank Corp.’s debt to one level above junk, adds host Melissa Lee.

“Anglo Irish.. took the wind out of European market sales,” adds Peter Boockvar, equity strategist at Miller Tabak and Fast Money friend in a Bloomberg interview. "That’s one of the catalysts. European bond markets, particularly Ireland and Portugal, are not trading that great.”

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Looking at some of the largest deals Monday – how should you trade?

UNILEVER BIDS FOR ALBERTO CULVER

On Monday Unilever announced plans to buy U.S. hair care group Alberto Culver for $3.7 billion or $37.50 a share, a19% premium to Friday close.

What’s the trade?

This deal is interesting because it boosts Unilever’s presence in North America, says Zach Karabell of RiverTwice. We’re seeing a retail staple company going after global growth. It’s an inherently low margin business in a world where margins are under pressure and they have to make it up with volume. That’s indicative of where growth and where activity is.

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WALMART BIDS FOR MASSMART

Walmart made a bid to buy Massmart, South Africa's third-largest retailer for more than $4 billion.

What must you know?

If the deal goes through it makes me more positive on Walmart for the long-term, says Brian Kelly. That’s a foot in the door in Africa. But it’s a longer term play, he adds. I’m thinking 5 years.

I’m seeing clients buy Walmart right now, counters Steve Grasso. They’re looking for the stock to go to $55 - $56.

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SOUTHWEST BIDS FOR AIRTRAN

Southwest Airlines said it inked a deal to acquire AirTran for $1.04 billion in cash and stock a 69% premium over AirTran’s Friday's closing price.

What’s the trade?

It may force consolidation, explains host Melissa Lee. Delta traded lower on the news perhaps because investors believe they have to make a move, now.

The deal lifted shares of low-cost rivals JetBlue , Alaska Airlines and Republic Airways adds Pete Najarian. It’s a sign that investors are betting on more consolidation in the space.

I’m seeing some unusual options action but in other names, he reveals, specifically AMR and US Airways. However I think these are investors that already long selling upside calls in an attempt to create some kind of dividend stream.

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EAR TO THE WALL: REGIONAL BANK TAKEOVER BOOM?

Are the regional banks in for more M&A? The largest number of bank failures in almost 20 years as well as tougher capital requirements has market watchers looking at a new wave of bank mergers.

What’s the trade?

Credit Suisse put out a note suggesting Canadian banks, Spanish banks and some of the super-regionals may be looking at making acquisitions, notes Fast Money host Melissa Lee.

Basell III rules will likely make it tougher for regionals to compete, says Brian Kelly so it makes sense that we see a merger mania in this space.

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OIL ROLLOVER WEIGHING ON STOCKS

Elsewhere in the market the traders are also watching the action in crude oil, which rolled over and dragged down the energy sector, broadly.

What’s the trade?

Oil has traded between $73 - $77, reminds Zach Karabell. I suspect it breaks out going into winter. But I’m more interested in the oil service names such as Schlumberger because some of the majors will likely spend money to increase the yield of their fields.

I’d also keep an eye on Petrobras and how they spend the $200 billion they’ve earmarked for their new wells. Follow where that money goes over the next 5-7 years.

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OUTSIDE THE STOCKS: GOLD HITS ANOTHER RECORD

In the commodities space, gold hit a record high at $1300 earlier Monday with silver surging to 30 year highs.

What’s the trade?

I’m long both gold and silver and don’t plan on selling either of them, says Brian Kelly.


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Trader disclosure: On Sept. 27th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Pete Najarian owns (NETL) call spreads; Pete Najarian owns (POT) call spreads; Pete Najarian owns (CNI); Pete Najarian owns (AMZN) call spreads; Pete Najarian owns (AKAM) call spreads; Pete Najarian owns (RAX) call spreads; Pete Najarian owns (LLNW) call spreads; Pete Najarian owns (DD); Pete Najarian owns (NOV); Pete Najarian owns (YHOO); Karabell owns (POT), (RIMM), (AAPL); Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST)

For Brian Kelly
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (ATI)
Accounts managed by Kanundrum Capital own (TIE)
Accounts managed by Kanundrum Capital own (PCL)
Accounts managed by Kanundrum Capital own (LPX)
Accounts managed by Kanundrum Capital own (RAX)
Accounts managed by Kanundrum Capital own (ANDE)
Accounts managed by Kanundrum Capital own (GPRE)
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital are short (XLF)
Accounts managed by Kanundrum Capital are short (IAI)
Accounts managed by Kanundrum Capital are short (FDX)
Accounts managed by Kanundrum Capital are short (BCS)
Accounts managed by Kanundrum Capital are short (HYG)

For Steve Grasso:
Stuart Frankel & Co and it’s partners own (AMGN)
Stuart Frankel & Co and it’s partners own (BAX)
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HPQ)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)

For Zach Karabell
Funds managed by River Twice Capital own (POT)

For Colin Gillis
***No Disclosures***



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