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Halftime: Are Big Trades About to Unravel?

On Wednesday investors started to grow worried that the big trades that have worked since late August were about to unravel.

For about 2 months the hot trades have been ‘weak dollar’ trades as the market anticipated quantitative easing part two – first telegraphed by the Fed late summer.

However, in more recent days market sentiment has shifted dramatically as the Street wonders if it’s time to sell the news – especially after published reports suggested QE2 could disappoint by several hundred billion.

With specifics about QE2 expected next Wednesday, how should you position now?

The market may be painted into a corner, explains Fast Money host Melissa Lee. If the Fed disappoints stocks sell-off. But if the Fed is in-line with expectations the market says big deal. And if QE2 is bigger than expected, the Street could take it to mean the economy is in real trouble. All roads may lead to a sell-off.

That thesis is pegged to a belief that the market has rallied largely on QE2, adds Steve Cortes. I think it's rallied on QE2 as well as the mid-terms. But I agree that both catalysts will likely disappoint. I just don’t see how the euphoria can be sustained. Yes, I think it’s probably time to sell the news.

That published report mentioned above said 'The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months,' reminds Brian Kelly. I take that as a floor not a ceiling. I believe the Fed will come in and do more if needed. As long as the S&P holds 1170 I'd buy the market.

The market is all about the dollar, says Joe Terranova. And despite what happens in the next week to 10 days, longer term I don’t think the dollar’s decline is over. As a result I expect the trades that have been working to continue working.

And if you look at the correlation between the dollar and the S&P over the long-term, it’s not all that negative, reminds Patty Edwards. I don’t think the strong dollar means the S&P necessarily has to go down, long –term. But I live in more than a 3-month increment.

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ENERGY LEADING US LOWER

Energy was the biggest drag in Wednesday’s market with investors taking profits in ConocoPhillips despite a strong earnings report, which beat analyst estimates.

Also crude oil traded lower after a new data showed a 5 million barrel build in inventories.

What’s the trade?

The oil trade gets killed by the stronger dollar, reminds Brian Kelly. You’ve got to watch the dollar in this space.

If you have a time frame longer than 3-months, I’d take a bullish position in land drillers, says Joe Terranova. I think supply will be challenged long-term. In the space look at NBR , Schlumberger and NOV .

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CHART OF THE DAY: EURO / DOLLAR

The traders are keeping a close eye on the action in the euro against the dollar.

If you're looking for a tell on dollar weakness, I'd watch 137.85 as a key level, explains Brian Kelly. If we break that I think we see a higher dollar.



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FAST FIXED INCOME: 10-YEAR YIELD AT 1-MONTH HIGH

Looking at the fixed income market, the 10-year yield popped to a 1 months high as the price of Treasurys traded lower on muted expectations for QE2.

What’s the trade?

I’d buy the TLT if the yield stays at this level, says Brian Kelly.


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TOPPING THE TAPE: BANKS

Once again Bank of America topped the Dow; but elsewhere in the sector JP Morgan struggled to stay in the green.

What’s the trade?

I’d step in and play the financials, says Joe Terranova. Although I’d steer clear of BofA, I’d look at American Express.

But when you see one cockroach you know there are more there, reminds Patty Edwards. There are better places to put your money.

If the stock rallies to $12, I’d short BofA, adds Steve Cortes. And at some point I’ll be a seller of banks broadly.

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FAST FLASH: NETFLIX

Netflix is all but defying gravity hitting a new all time high once again. The stock is up a whopping 225% year to date.

How should you trade it?

Netflix has a game-changing technology but at these levels I get nosebleeds, says Patty Edwards. Valuations are just too high right now.


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CAN YOU TRADE APP-CRAZE YET?

Looking to cash in on the commerce side of the app craze?

Venture capital firm Sierra Ventures is doing just that with investments in the new business-friendly Appcelerator, the 2nd-largest Apple app store publisher, which recently announced partnership with Paypal for new e- commerce platform.

What must you know about this blossoming trend?

Find out from Sierra Ventures' Managing Director Tim Guleri. Watch the video now!



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Trader disclosure: On Oct. 27, 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), (AXP), (C), (CRM), (FCX), (GOOG), (GS), (IBM), (ISRG), (JPM), (MCD), (MDT), (MMM), (NBR), (NKE), (ORCL), (PEP), (PCP), (TBT), (TLT), (UPL), (VRTS), (XBI); Cortes owns (K); Cortes owns (TSN); Cortes is short crude oil; Cortes is short gold; Cortes is short (RSX); Cortes is short the U.K. Pound; Cortes owns the S&P 500

For Brian Kelly
Accounts managed by Kanundrum Capital own (JEF)
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 (PPLT)
Accounts managed by Kanundrum Capital own (REE)
Accounts managed by Kanundrum Capital own (MCP)
Accounts managed by Kanundrum Capital own (POT)
Accounts managed by Kanundrum Capital own (ANDE)
Accounts managed by Kanundrum Capital own (JO)
Accounts managed by Kanundrum Capital own (JJG)
Accounts managed by Kanundrum Capital own (SGG)
Accounts managed by Kanundrum Capital own (NIB)
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital own (XHB)
Accounts managed by Kanundrum Capital own (HD)
Accounts managed by Kanundrum Capital own (AWI)

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 Patty Edwards
Edwards owns (AKAM) for clients
Edwards owns (COH) for clients
Edwards owns (GLD) for clients
Edwards owns (GS) for clients
Edwards owns (JCG) for clients
Edwards owns (JPM) for clients
Edwards owns (MSFT) for clients
Edwards owns (S) for clients
Edwards owns (TAL) for clients
Edwards owns (V) for clients

For Kimberly Greenberger
Morgan Stanley owned 1% or more of common equity securities of (ARO) (TLB)
Morgan Stanley has received investment banking compensation (GPS), (LTD), within the last 12 months
Morgan Stanley intends to seek compensation for investment banking services from (COH), (JCG) in the next 3 months.
Morgan Stanley has an investment banking client relationship with (COH), (GPS), (JCG), LMT) within the last 12 months.
Morgan Stanley has provided non-investment banking, securities-related services to (ANF), (TJX) within the last 12 months.
Morgan Stanley makes a market in (ANF), (ARO), (AEO), (ANN), (CHS), (PLCE), (COH), (GPS), (JCG), (LTD), (ROST), (TLB), (TJX) (URBN)

For Tim Guleri
***No Disclosures***


CNBC.com with wires.

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ALXN
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BAC
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COP
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JPM MLP ETN
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AMNB
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NFLX
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NOV
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SLB
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ISH BAR 20YTB
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SPDR NRG SEL
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