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Are Weak Financials A Bad Omen For October?

With only two days left to trade this month latecomers jumped onto the September bandwagon Tuesday, sending both the Dow and S&P higher as they bought sectors that have outperformed during the month.

The S&P 500 has gained 9.4 percent so far in September, historically the worst month for stocks.

"When a month takes you by surprise like this, you tend to be underexposed to stocks and overexposed in cash and bonds. And as the quarter comes to an end, people are rushing to at least have ownership of the stocks that have performed well and have a good outlook. That's causing the aggressiveness in the market," explains Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in a Reuters interview.

As bullish as the momentum may seem right now chatter is growing as to whether it will all come to a screeching halt on Friday October 1st – once the quarter closes.

To amplify those concerns, doubters point out the poor performance in banks as a bad market omen . The sector has has consistently trailed and typically financials foretell turns in the market, reminds Fast Money host Melissa Lee.

What should you be watching?

Instant Insights with the Fast Money traders

Action in the Russell and the Transports will either confirm or deny the September rally, explains Oppenheimer's Carter Worth.

Although the S&P has broken above 1130 - its June top and August top - neither the Dow Transports nor the Russell 2000 – has done the same, yet.

To determine whether the indexes will join the S&P and break higher it helps to look at individual names in those indexes such as Children’s Place (in the Russell) and Norfolk Southern (in the Transports), Worth explains.

Patterns in both names suggest they want to break higher, Worth says. However, as mentioned above, weakness in the financials is a major red flag.

As a result the market is likely at an inflection point.

The bottom line is that the Russell and the Transports will either confirm or deny the September rally.

I agree that we may be at an inflection point, adds Guy Adami. On a bullish note the market traded down 1132 then bounced and closed above 1135. And on a bearish note the Vix looked like it was taking a run at 23.5.

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HP RAISES FORECAST

After the bell, Hewlett-Packard forecast revenue and earnings for fiscal 2011 above Wall Street's expectations, as it prepares to name a new chief executive to succeed Mark Hurd.

Looking at the numbers, the company forecast earnings, excluding items, for fiscal 2011 will rise 12 percent to 14 percent to $5.05 to $5.15 a share on revenue of $131.5 billion to $133.5 billion.

Wall Street is targeting earnings of $4.99 a share on revenue of $131.4 billion for the next fiscal year, according to Thomson Reuters I/B/E/S.

What’s the trade?

On the news, I think money managers now start to rotate money out of IBM and into HP, speculates Joe Terranova.

I think valuations in HP are very fair here, says Guy Adami. But I’d wait to see what the market is doing before making any big moves.

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GREEN MOUNTAIN PLUNGES 10% AFTER HOURS

Shares of Green Mountain plunged almost 10% in extended trade after the company disclosed that the SEC has requested documents related to “certain revenue recognition practices and the Company’s relationship with one of its fulfillment vendors.”

What’s the trade?

This is a game changer. If you’re long the stock this is probably a good time to hedge your exposure, says Joe Terranova.

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APPLE, RESEARCH IN MOTION LEAD TECH SHARES LOWER

Apple was among the big losers in tech Tuesday with jittery investors taking shares down sharply on reports that HP was courting Apple COO and heir apparent Tim Cook to replace Mark Hurd.

As you may know Gleacher analyst Brian Marshall talked with us on the Halftime Report after chatting with Cook personally about the speculation.

According to Marshall the rumors are “definitely false.” (Click here to go to “Is HP Trying To Poach Apple?")
What should you make of it?

If you’ve had a run in Apple this may be the time to sell, says Guy Adami. Maybe this tells you Apple isn’t going to climb forever.

For me the move demonstrates that as goes Apple so goes the market, says Brian Kelly.

In the space, I’d play long Verizon, says Stephen Weiss author of The Billion Dollar Mistsake, as a bet Verizon gets the iPhone.

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RIM DISAPPOINTS

Elsewhere in tech, it’s safe to say investors were underwhelmed by the new Playbook tablet unveiled by RIM on Monday. Shares of the BlackBerry maker led the space lower.

What’s the trade?

I don’t like their timing, says Brian Kelly. It’s coming out after the holidays and right when their rivals will introduce their tablets at the Consumer Electronics Show.

I may stand alone but I think the Playbook puts a foundation under the stock, says Joe Terranova. I think it no longer continues its precipitous decline.

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TOPPING THE TAPE: CLOUD STOCKS

Cloud computing stocks topped the tape in tech on Tuesday with Rackspace and NetApp both celebrating new 52 week highs.

What’s the trade?

NetApp has climbed so much it’s just about priced out of being an attractive takeover target, says Pete Najarian. But maybe that was never behind the run to begin with.

The cloud space is the one area of tech that I like, says Brian Kelly. I think the iPad changes the game if you can store data in the clouds.

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UNDER THE RADAR: SUCCESSFACTORS (SFSF)

Ever since the 3PAR bidding war, cloud computing stocks have been under the spotlight but Fast Money trader Joe Terranova is watching, Success Factors, a name that has remained "under the radar."

What must you know about this stock? Following are some important points:
-Cloud-Based ‘Management’ Software
-Bookings Growth Up 20%
-Market Cap: $1.9 BLN

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UNUSUAL ACTIVITY: CASINOS

Pete Najarian has spotted some unusual options action in the casino names.

If MGM can break above 11.50 it should have plenty more upside and that's what options players are looking for, he says.

I like Las Vegas Sands much more, counters Brian Kelly. MGM is looking to spin-off their assets in Macau and that's their crown jewel.

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ANALYZE THIS: GOLD, COMMODITIES TRADE OF DAY, MONTH, YEAR

Once again gold made a new high on Tuesday amid a weaker dollar and a lower than expected consumer confidence.

But gold can’t just go up, up up --- can it? When does it turn?

For insights we turned to Rich Ilczyszyn, Lind-Waldock Senior Market Strategist.

He tells us he expects to see capitulation. "I’m looking for a 2-5% correction from $1300 - $1325 on the high side down to a level of about $1240. Book some profits-- now it's time to hedge your downside risk."

What else does he tell the desk? Check out our entire conversation. Watch the video now!







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Trader disclosure: On September 28th, 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 (CNI); Pete Najarian owns (AMZN); Pete Najarian owns (AKAM) call spreads; Pete Najarian owns (LLNW) call spreads; Pete Najarian owns (NTAP) call spreads; Pete Najarian owns (DD); Pete Najarian owns (NOV); Pete Najarian owns (RRC); Pete Najarian owns (DO); Pete Najarian owns (GDXJ); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Terranova Owns (APA), (AAPL), (ARUN), (BMO), (C), (IBM), (HES), (JOYG), (XBI), (FTO), (OXY), (ORCL), (PEP), (POT), (RSH), (SU), (RIG), (UPL), (VRTS); Cortes is short (XLF); Cortes is short (BAC); Cortes is short (LVS); Cortes owns German Treasuries; Cortes is short the British Pound; Cortes is short corn; Weiss owns (JOYG), (BAC), (AKAM), (CSX), (VZ); Weiss is short (SF)

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 (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 Rich Ilczyszyan
***No Disclosures***

For Carter Worth
***No Disclosures***

For David Sackler
Moab Capital Partners LLC Owns (RGS)

For Scott Nations
***No Disclosures***


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