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Can Rally Continue After Best September Since 1939?

At 4pm Thursday if you popped your head out of your office window you could almost hear the bulls cheering up and down Wall Street.

By the end of the session the S&P had officially defied the odds and gained 8.8% - its best September since 1992. As you likely know by now, it’s a remarkable feat considering September is typically the worst month of the year for stocks.

The Dow’s performance was even better. The blue chip index tracked its best performance since 1939.

Investor appetite for risk resumed this month after economic data suggested the recovery wasn’t as bad as feared and a weaker dollar made resource names more attractive.

With the month and the quarter now closed investors are anxious for signs that the rally is sustainable.

”If (future) data and earnings confirm that a double-dip (is off the table ), October may be the month for the S&P to break above trading range and reach the highs that we saw in April," says John Canally, an economist and investment strategist at LPL Financial in a Reuters interview.

Nonetheless it’s difficult not to notice that the S&P 500 made a rather bearish intra-day reversal and is struggling to break above the 1,145-1,150 trading range.

Since September was such a strong month, some investors including Fast Money trader Guy Adami are concerned that October will be a scary one.

How should you position now?

Instant Insights with the Fast Money traders

Thursday’s reversal feels like the start of a trend, explains Adami. The S&P traded up to 1158 and sold off hard. This is the first major reversal we’ve seen for quite some time. And the Vix spiked above 24 before pulling back – it's the first time we’ve seen that in a while, too. It seems to me things are in place for the market to sell-off.

I’m a seller into strength, says Karen Finerman. That just seems like the prudent thing to do if you have gains.

I was shocked to see the market fall out of bed and trade down from 1157 down to 1142 and then break that, adds Steve Grasso on the Halftime Report. However the key technical level is 1132 – the 50% retracement. I wouldn’t say the market is reversing unless we break below that level.

Looking back at 1939, the economy was in recovery after a second downturn, explains Anthony Scaramucci. And 6 months later the market was down again by about 40% so history isn't on the side of the bulls. But what’s very different now is the Federal Reserve. With QE2 out there, I think stocks will continue to climb.

For me the critical level is 1175 on the S&P, the 78.6% retracement of the April - June downtrend, says Brian Kelly. If we break above that level we’ll probably see a chase for performance. And if we get a chance for performance trading volume should improve and banks should perform. That will make me bullish.

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AFTER HOURS ACTION: GYMBOREE

Gymboree shares surged 17% in extended trade after a report in the Wall Street Journal said the board is weighing a sale of the company.

According to the paper, bankers for the San Francisco-based retailer have been putting out feelers but cautioned there is no auction process.

There has been no official comment.

How should you trade it?

I own the stock, says Karen Finerman. I think they’ll generate some interest. And quite frankly it would not shock me to see Children’s Place to be a target, too.

I agree that there could be more upside here, concurs Guy Adami.

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GOLD BREAKS $1315 OVERNIGHT

Gold also broke records this September with the precious metal touching a new all-time high of $1315 before paring some of those gains.

What’s the trade?

If you believe in the gold story and that gold is on its way to $2000, I’d look at a long position in the gold miners, says Guy Adami.

I’d also look at the junior miners, adds Brian Kelly.

I’m cautious that if we get better fundamentals for stocks and for bonds gold will make a sharp move lower, counters Anthony Scaramucci.

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BAD OMEN: FINANCIALS

Meanwhile financials have consistently trailed the S&P this month and typically financials foretell turns in the market.

What should you make of it?

Light trading volumes look like they’re going to be a problem for this sector, says Karen Finerman.

In this space there’s also poor loan demand and even increased M&A isn’t helping share price, muses Steve Cortes. I think the XLF is going below $14.

It seems to me we’re seeing a structural change in trading and as a result investors need to ratchet down expectations. It wouldn’t surprise me to see Goldman trade down to $140.

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BUY AIG ON ITS EXIT FROM GOV’T CONTROL?

Meanwhile AIG continued higher on Thursday one day after the company announced plans to repay taxpayers.

Is this the time to establish a new position in AIG?

Find out from Barry Ritholtz, FusionIQ. Watch the video now.





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Trader disclosure: On Sept. 30, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Guy Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT) and his wife works at Merck. Finerman owns (PM) and (IBM). Finerman is short (IJR), (MDY), (SPY) and (IWM). Steve Cortes owns U.S. Treasuries and is short the euro, the British pound, Mexican peso, (XLF), (BAC), (LVS) and corn; Finerman and Finerman’s Firm owns (BAC); Finerman and Finerman’s Firm owns (BP); Finerman and Finerman’s Firm owns (FLS); Finerman and Finerman’s Firm owns (JPM); Finerman and Finerman’s Firm owns (RIG); Finerman’s firm owns S&P 500 puts; Finerman’s firm owns Russell 2000 puts; 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 (SLV)
Accounts managed by Kanundrum Capital own (ANDE)
Accounts managed by Kanundrum Capital own (GPRE)
Accounts managed by Kanundrum Capital own (PCL)
Accounts managed by Kanundrum Capital own (LPX)
Accounts managed by Kanundrum Capital owns U.S. Dollars
Accounts managed by Kanundrum Capital own Swiss Franc
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital are short (XLF)
Accounts managed by Kanundrum Capital are short (BCS)
Accounts managed by Kanundrum Capital are short (HYG)
Accounts managed by Kanundrum Capital are short (SLF)
Accounts managed by Kanundrum Capital are short the Mexican Peso
Accounts managed by Kanundrum Capital are short the U.K. Pound

For Anthony Scaramucci:
Scaramucci and SkyBridge Capital own (AAPL)
Scaramucci and SkyBridge Capital own (BAC)
Scaramucci and SkyBridge Capital own (C)
Scaramucci and SkyBridge Capital own (GS)
Scaramucci and SkyBridge Capital own (JPM)
Scaramucci and SkyBridge Capital own the S&P 500
Scaramucci and SkyBridge Capital own the U.S. Dollar

For Steve Grasso:
Stuart Frankel & Co and it’s partners own (AMGN)
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 Pablo Perez-Fernandez
***No Disclosures***

For Barry Ritholtz
***No Disclosures***

For Donald Strazsheim
***No Disclosures***

For Kenneth Stumphauzer
***No Disclosures***

For Pete Boockvar
***No Disclosures***



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