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Halftime: Gains In Citi Send Wrong Signal?

Shares of Citi spiked Wednesday after the U.S. government said it was selling a portion of the preferred shares it holds, however strength in this sector seems to be the exception, not the rule.

Although the S&P has climbed about 9% since the beginning of the month the financial sector has consistently trailed. That's problematic because it's widely believed the rally can't continue without the banking sector.

However, in the wake of Citi's move higher, optimistic chatter has surfaced suggesting gains in Citi could finally light a fire under the beleaguered financials, broadly.

Will Citi lead the sector higher? Or are gains sending the wrong signal?

Instant Insights with the Fast Money traders

The move higher in Citi is a big percentage gain but really we’re just talking pennies, says Pete Najarian. In the space I’m watching JPMorgan, Goldman Sachs and Morgan Stanley and they continue to underperform. That’s disturbing. On Tuesday’s Fast Money, Oppenheimer's Carter Worth said the same thing. He's concerned that the financials are not participating on this run. (Click here to go to that post.)

If Citi triggers a rally in the XLF I’d add to shorts in the financials as a whole says Steve Cortes. The underperformance in this group is massive. The S&P is up 9% this month while Morgan Stanley is down on the month. And for good reason. The yield curve is too low and trading activity is drying up.

If you must play financials I agree that this is a space to short, says Patty Edwards. The financials are facing way too many headwinds. However, I wouldn't play in the space at all until we get their earnings.

Looking at fundamentals, I’ve heard that Morgan Stanley put on a hiring freeze through the end of the year, adds Joe Terranova. That suggests the trading environment isn’t that good right now. However, I’m not sure I’d go short.

As part of a 2011 strategy, I think it’s okay to pick your spots, adds Pete Najarian. If you have a long-term time horizon the worst is probably priced in.

Read More:

Treasury to Sell Portion of Citigroup Preferred Securities


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DOW ON TRACK FOR SEPTEMBER TO REMEMBER

Traders are keeping a close eye on the Dow as both the month and the quarter draw to a close this week.

Although September is historically the worst month for stocks with the Dow typically trading down by about 1%, this year the blue chip index took off like a rocket – despite weakness on Wednesday it’s well over 8% higher on the month.

In fact, the Dow is on track for its best September percent performance since 1939!

How should you trade?

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.

I agree that right now it seems money managers are chasing performance, says Patty Edwards. But I’m worried about October.

Clearly the chase for performance is on, adds Joe Terranova. But it was a strong PMI from China and a strong ISM number here in the US that largely triggered the rally. Now we need to watch for the next China PMI and ISM in the US. They will either confirm the rally or cause it to deteriorate.

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GOLD PRICES HIT RECORD $1315 HIT OVERNIGHT

There’s just no stopping the precious metals trade. Gold continued to climb after hitting a record $1315 an ounce overnight. Silver also holding near 30 year highs.

What’s the trade?

Gold has confounded me, says Steve Cortes. If you believe in the reflation trade I’d look at usable industrial assets and not gold.

If you believe in the gold trade and believe in the movement, I’d look at the miners and the junior miners, counsels Pete Najarian. If gold goes higher the miners should participate even faster.

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FAST FX: DOLLAR

The dollar has been largely behind gains in the stock market as the weaker dollar makes commodities more attractive to holders of other currencies.

And that trade shows no signs of stopping with the dollar index hitting a new 8 month low on expectations of further quantitative easing.

What’s the trade?

Things look very negative for the dollar and that should boost commodities, says Joe Terranova. However, I’d pull away from the ag space and put money to work in energy . I like Diamond Offshore, Ultra Petroleum and the refiners.

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TOPPING THE TAPE: H-P ON RAISED FORECAST

Shares of HP topped the tape on Wednesday after the company's interim CEO gave a 2011 revenue and earnings outlook that beat expectations, however no mention was made of a possible successor to Mark Hurd.

What’s the trade?

The stock is only trading at 9 times next years earnings, says Patty Edwards. I’d stay long. It’s a value and it has catalysts to make it climb.

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TABLET TRADE

On Wednesday Dell became the latest tech titan to come to the tablet table; the company announced plans to launch its own 7 inch device, 'The Streak' in the next few weeks. This follows RIM’s Playbook announcement Monday.

What’s the trade?

This new gadget has me starting to look at Dell again, says Pete Najarian. It’s the first time in a long time – but I haven’t made a decision.

Looking at RIM, I think the stock is a buy around $40-$45, says Joe Terranova.



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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 (BCSI) call spreads; Pete Najarian owns (WFC) put preads; Pete Najarian owns (BUCY) call spreads; Terranova Owns (APA), (AAPL), (ARUN), (BMO), (C), (IBM), (HES), (JOYG), (XBI), (FTO), (OXY), (ORCL), (PEP), (POT), (RSH), (SU), (RIG), (UPL), (VRTS); Cortes owns U.S. Treasuries; Cortes is short (XLF); Cortes is short (BAC); Cortes is short (LVS); Cortes is short corn; Cortes owns U.S. Treasuries; Cortes is short (XLF); Cortes is short (BAC); Cortes is short (LVS); Cortes is short corn

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 Patty Edwards
Edwards owns (BAC) for clients
Edwards owns (JPM) for clients
Edwards owns (HPQ) for clients
Edwards owns (WMT) for clients
Edwards owns (FXI) for clients
Edwards owns (AMZN) for clients
Edwards owns (SYT) for clients
Edwards owns (VXX) for clients
Edwards owns (SPY) for clients
Edwards owns (QQQQ) for clients

For David Joyce
***No Disclosures***





CNBC.com with wires.

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DJIA
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C
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4331
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DO
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HPQ
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JPM MLP ETN
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MS
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BB
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UPL
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SPDR NRG SEL
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SPDR FIN SEL
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MV J GLD MIN
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