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Halftime: Bank Strength Continues Into Wells, BofA Earnings?

On Monday investors were closely watching the strength in bank stocks with bulls hoping the bounce meant the sector wouldn't drag down the broad rally.

Citigroup generated a strong tailwind for the sector, with better-than-expected quarterly profits trumping concerns about the foreclosure mess.

Meanwhile, traders were struggling with how to game the sector ahead of a slew of other bank earnings in the days ahead. Take a look:

Earnings: The Week Ahead
Tues:
Bank Of America, Goldman Sachs
Wed:Morgan Stanley, Wells Fargo

Will the strength continue? Or will further foreclosure woes derail the rally?

Instant Insights with the Fast Money traders

All the bulls need to hold onto the momentum is for the banks to level off, explains Steve Grasso. If selling like we saw last week continues it will likely drag the market lower. But right now the selling is moderating which is positive for the S&P broadly. I think we could make it to 1200. I'm a buyer.

Like I’ve said so often, investors should not look toward the financials as juice for the market, adds Zach Karabell. But as long as the bottom doesn’t fall out, I agree that the S&P should continue to rally.

Although we don't know the extent of the woes facing the financials, it seems Wall Street is getting comfortable with the fact that the problem exists, says Brian Kelly. That leads me to be bullish on the market.

However, if you’re looking to play the financials, I'd look at Goldman or Jefferies as a bet that trading volumes pick up, Kelly adds. Elsewhere in the space, I'd be cautious because I don’t think we’re going to see loan growth or the traditional banking model driving the financial sector.

I’m seeing a little bit of put buying in BofA and Wells, adds Brian Stutland. It suggests there at least some caution into earnings. However I agree that the momentum is with the bulls. I expect the S&P prints above 1200 and I'm a buyer of dips.

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TAKE YOUR POSITION: APPLE, TECH

This week the Street hears earnings from 13 Dow components and over 100 S&P companies, but one of the most closely watched, Apple, delivers its report after the close Monday.

Considering the stock is at an all time high, how should you position?

I’d be long, says Piper Jaffray's Gene Munster. I think investors should take themselves out of the quarter mentality and think about where the numbers are going over the next 1-2 years. I have an ‘Overweight’ rating on apple with a $390 price target.

Options action suggests the stock should move 6% in either direction in the wake of earnings, says Brian Stutland.

I spoke with Brian Marshall at Gleacher and although he believes in the Apple story, he also says it seems investors are just buying this stock blindly, adds host Melissa Lee.

Elsewhere in tech, I’m very interested in what VMWare says when they report after the bell, adds Brian Kelly. I want to hear what they say about server refresh, PC refersh and what’s converging into the cloud. I think investors can extrapolate what they say to other areas of cloud computing.

(Click here to go to Options Action: Apple -- and check out Stutland's collar risk reversal for investors who already own shares.)






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Trader disclosure: On Oct.18, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Stutland is short (AAPL) puts; Stutland owns (BAC); Stutland owns (CME); Stutland owns (GS); Stuland owns (IBM) short calls; Stutland owns (MCD); Stutland is short (TOL), short put; Stutland owns (WFC) and (WFC) bonds; Karabell owns (AAPL), (C), (GOOG), (IBM); 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 (TIP)
Accounts managed by Kanundrum Capital own (SLV)
Accounts managed by Kanundrum Capital own (REE)
Accounts managed by Kanundrum Capital own (MCP)
Accounts managed by Kanundrum Capital own (JEF)
Accounts managed by Kanundrum Capital own (UUP)
Accounts managed by Kanundrum Capital own the Swiss Franc
Accounts managed by Kanundrum Capital are short the UK Pound
Accounts managed by Kanundrum Capital are short the Mexican Peso

For Zach Karabell
River Twice Capital owns (HUN)
River Twice Capital owns (IBM)
River Twice Capital owns (GOOG)
River Twice Capital is short (SPY)
River Twice Capital is short (QQQQ)

For Steve Grasso:
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 (OPEN)
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 Gene Munster
Piper Jaffray makes a market in (AAPL)

For Andrew Kligerman
A member of Kligerman’s team, or one of their household members, owns (AIG)
(AIG) within the past 12 months has been an investment-banking client of UBS
(AIG) within the past 12 months has been a non-investment banking securities-related services client of UBS
(AIG) is, or within the past 12 months has been a non-securities services client of UBS
Within the past 12 months, UBS Securities LLC has received compensation from (AIG)


CNBC.com with wires.

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C
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GS
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JEF
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MS
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VMW
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WFC
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SPDR FIN SEL
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AAPL
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