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Halftime: New Sign That Stocks Topped Out?

Stocks rose modestly Friday as investors placed bets for the last quarter of 2010, still desperate for signs to either confirm or deny the recent rally.

And on Friday they seemed to get both.

On a bullish note, the latest PMI number out of Beijing beat expectations and showed China’s manufacturing sector had generated even greater momentum than expected.

But on a bearish note, although the latest ISM number here in the US showed manufacturing activity increased last month, it was at a slower rate.

The report also noted slower gains in new orders — a gauge of future business — and perhaps more concerning a rise in inventories. Each of those could hamper growth in the coming months.

As you may remember, last month's report was better than expected and helped trigger the explosive rally.

How should you position now?

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Instant Insights with the Fast Money traders

No doubt about it, ISM is spooking the markets, says Steve Grasso. Jefferies put out a piece that said the last time the spread between new orders and inventory was this big it signaled a top in the market. As a result the S&P is struggling at 1150.

The move warrants what William Dudley, the president of the New York Fed said earlier in the week -- that he believes "further action is likely to be warranted", adds Joe Terranova. I think QE is back on the table and that should put a floor under stocks.

I'm see opportunity from the PMI number out of China, adds Patty Edwards. I'm a buyer of shipping container company TAL due to China's strength.

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NEW QUARTER – OLD STORY

It may be a new quarter but it's the same old story with gold : again hitting new record highs Friday after the weaker than expected ISM number.

Silver also returned to 30-year highs.

What’s the trade?

I have not taken profits in gold but I am taking profits in silver, says Patty Edwards. However I’m a buyer of platinum.

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POLL OF THE DAY

Tell us what you think. We want to know!














AUTO SALES BREAKING DURING SHOW

Ford shares spiked midday after the car company reported September sales surged 46% - more than expected.

Meanwhile GM reported U.S. sales for its core brands rose 22% in September.

What’s the trade?

Ford is a frustrating trade. As far as I can tell Ford stays above $12 but doesn’t seem able to break above $13, counsels Steve Grasso.

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WATCHING FINANCIALS

The Bank ETF bounced Friday despite more downgrades and estimates cuts. Considering the financials were the worst performing sector of the third quarter, will October bring better luck?

I’m concerned about earnings in this sector, says Patty Edwards, but the bar has been lowered dramatically.

I think trading during the month of September was phenomenal, counters Jon Najarian. That reason alone is a good reason to be long Goldman .

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FLASH CRASH REPORT

Also on the Halftime Report, the traders and CNBC's Bob Pisani pored over all the details of a report issued by the SEC on the May 6th Flash Crash.

According to Federal regulators, a large trading firm's use of a computer sell order triggered the May 6 market plunge, which sent the Dow Jones industrial average dropping nearly 1,000 points in less than a half-hour.

That set off two waves of "liquidity drains", which means market players swiftly pulled their money from the stock market.

The gang has a lot to say about the findings. Watch the video above for all their insights.

Read More:

'Flash Crash' Triggered by Computer Sell Order: SEC



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Trader disclosure: On Oct. 1, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST); Terranova Owns (AAPL), (APA), (ARUN), (C), (EOG), (FTO), (HES), (IBM), (JOYG), (NBR), (OIH), (ORCL), (OXY), (PEP), (POT), (RIG), (RIMM), (RSH), (SU), (UPL), (VRTS), (XBI)

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 Patty Edwards
Edwards owns (HPQ) for clients
Edwards owns (AAPL) for clients
Edwards owns (ORCL) for clients
Edwards owns (JPM) for clients
Edwards owns (GLD) for clients
Edwards owns (SLV) for clients
Edwards owns (FCX) for clients
Edwards owns (PGM) for clients

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 (DRYS)

For Peter Goldmacher
***No Disclosures***

CNBC.com with wires.

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