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Buy Gold, Short The Dollar in October?

As September draws to a close there’s no questions that the long gold short dollar trade was the right trade.
On Wednesday the dollar hit a new 8-month low against a basket of currencies while gold touched a record $1315 an ounce before settling lower.

Should you stick with what's working?

Instant Insights with the Fast Money traders

I’m not sure that the dollar will continue to get weaker but I expect gold to make further gains in the month ahead, says Brian Kelly. I think the play is long the junior miners on M&A speculation.

If the mid-term elections generate more fiscal responsibility in Congress I think we see gold come in a couple hundred points, counters Steve Grasso. Be careful.

Gold has been a buy and hold investment for the last 10 years, adds Joe Terranova. But if you’re a trader I’d move positions into energy.

We’re starting to hear rhetoric from a gold mining CEO who says he’ll never hedge again, reminds Guy Adami. I’m not saying it’s the top but remember gold goes down a lot faster than when it goes up.

I’m more interested in metals that are used in industrial production, says Patty Edwards. Specifically look at platinum, which is used to make catalytic converters in cars. I see it as a play on more cars in China and India.

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TOPPING THE TAPE: OIL & ENERGY SECTOR

The traders are keeping a close eye on oil after crude oil settled at its highest level since August 11.

What’s the trade?

I think we’re seeing shorts unwind, says Joe Terranova. Energy may be the asset that appreciates the most over the next few months. Fundamentals are shifting quickly. I’d look at a long position of Ultra Petroleum ; it tends to move aggressively higher if oil futures increase.

In this space, I’m seeing a lot of buy side interest in RIG , says Steve Grasso.

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TOPPING THE TAPE: TAXPAYER TRADES CITIGROUP, AIG LEAD MARKET

Shares of Citi spiked Wednesday after the U.S. government said it was selling a portion of the $2.2 billion in trust preferred securities it received from the bank in return for sharing potential losses on a pool of assets the bank held.

(Although Treasury agreed in January 2009 to share the potential losses no payment was ever made and no further obligation to do so exists, so all proceeds will be a net gain for taxpayers, the department said.)

Meanwhile, investors were cheered by AIG’s chairman, who said AIG was nearing the conclusion of talks with the government and an exit plan arrangement will be a "win-win" for the government and company.

What’s the trade?

Citi has outpeformed over the last couple quarters when the government has stepped away, reminds Brian Kelly. I'm long but it's a trade not a call on Citi.

I'm long Citi and continue to hold it, says Steve Grasso. I think it's still attractive and once the government clears out the headwinds should dissipate.

I'm also long Citi, adds Joe Terranova. AIG, however, is not a stock that I have any interest in owning.

For years AIG was one of the best stocks you could own and it was taken down by about 25 people, adds Guy Adami. In the future it could be a great company again but I wouldn’t place a bet here.

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S&P's 5 BIGGEST WINNERS, BIGGEST LOSER

Investors took profits on Wednesday with the S&P closing modestly lower one day ahead of the last day of the month and the quarter.

By all accounts this will be a September for the history books with the S&P 500 on track to post one of its largest monthly percentage gains in almost 20 years.

As of September 29th, the S&P 500 was up more than 9 percent for the month. The benchmark has posted monthly gains of more than 9 percent only twice since the start of 1992.

Take a look at some of the winners.

S&P 500 Winners In September

% Monthly Change
Jabil Circuit 40%
CarMax 39%
JDS Uniphase 38%
JC Penney 35%
Office Depot 34%


Considering the massive gains, how should you trade going into October?

I think these moves signal a reversal in pessimism, says Joe Terranova. Now we have to see if the change continues.

Timing is everything in the market, says Guy Adami. Jabil made a 52-week low on August 31st so the rally in September is getting back to where it was. Don’t think it had some kind of crazy run.

S&P 500 Worst Performers In Sept.

% Monthly Change
Monsanto -8%
Adobe -5%
Tyson Foods -5%
Sara Lee -5%
M&T Bank Corp. -4%

Considering these stocks didn’t participate in the rally, how should you trade them going into October?

These are very stock specific stories, says Brian Kelly. I wouldn’t extrapolate across the entire market due to these losses.

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UNDER THE RADAR STOCKS: UNSUNG HEROES


Above are September's top movers but following you'll find some under the radar movers.

Airlines:

I’m keeping an eye on the airline space broadly, says Joe Terranova. I think we’re seeing the industry change fundamentally. I’d buy on dips.

In the space I’d keep an eye on JetBlue , says Guy Adami. It’s pushing against it’s 52-week high but it could have room on the upside.

I’m bullish of Alaska Air, says Patty Edwards. I think the stock is incredibly cheap.

Lumber:
I love the action in Weyerhaeuser , says Steve Grasso.

Lumber has outperformed historically in periods of inflation, says Brian Kelly. If the Fed can get inflation above interest rates it should be an incentive to invest and the lumber market should go higher.



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Trader disclosure: On Sept. 29, 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), (IBM), (HES), (JOYG), (XBI), (FTO), (OXY), (ORCL), (PEP), (POT), (RSH), (SU), (RIG), (UPL), (VRTS); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST)

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 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 (C)
Accounts managed by Kanundrum Capital owns U.S. Dollars
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital own (ATI)
Accounts managed by Kanundrum Capital own (TIE)
Accounts managed by Kanundrum Capital own (RAX)
Accounts managed by Kanundrum Capital own Swiss Franc
Accounts managed by Kanundrum Capital are short (XLF)
Accounts managed by Kanundrum Capital are short (IAI)
Accounts managed by Kanundrum Capital are short (STT)
Accounts managed by Kanundrum Capital are short (FDX)
Accounts managed by Kanundrum Capital are short the Mexican Peso
Accounts managed by Kanundrum Capital are short the U.K. Pound

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 Kevin Pleines
Birinyi owns (AMZN)

For Doug Kass
***No Disclosures***

For Joe LaVorgna
***No Disclosures***

For Mike Khouw
***No Disclosures***



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