What a week this was for the market! Potent catalysts sent the bulls off to the races with the Dow and S&P both making 2010 highs and closing Friday at 2-year highs.
The unbridled optimism was largely generated by two catalysts – a mid-term election which resulted in GOP control of the House and - perhaps more influential – a Fed statement that provided details on the size and scope of QE2.
It would seem like Wall Street is looking at all systems go -- except you’d be hard pressed to tell that from Friday’s zig-zag market action. The ebb and flow in stocks was enough to make even the heartiest investors a little sea-sick with major indexes making gains, giving them back and recovering them by the close.
What does that action mean? How should you position now?
Instant Insights with the Fast Money traders
Odds suggest to me that it all ends poorly, says Brian Kelly. But as long as Ben Bernanke is running the printing press you have to go along for the ride.
The issue for me is that it seems like we now have limitless upside, adds Steve Grasso. But when you look at the fundamentals the market is out of powerful catalysts. I'd wait to see how the market moves over the next week or so and see if it can run on its own.
The catalyst could be a chase for performance into year’s end, adds Joe Terranova. And globally there’s promise from the emerging markets. Those factor should makie the rally sustainable.
Although demand from EM certainly helps, the US is clearly the largest economy, counters Guy Adami. And things are weak domestically.
Investors may want to keep an eye on the action in the homebuilders , adds Grasso. The last thing that rallies is usually the dogs and the homebuilders are rallying. That suggests to me the short covering has ended and perhaps the rally is over.
DOLLAR TO STOP BULL DEAD IN TRACKS
The Fast Money desk suggests keeping an eye on moves in the dollar - on Friday the greenback all but erased Thursday’s declines.
According to CNBC’s Bob Pisani, if the dollar bottoms and begins reversing its downward trend the QE2 trade of shorting the dollar and going long commodities could be over.
What's the takeaway?
Looking at the weak dollar strong S&P correlation – although it has been highly correlated recently if you look longer term the correlation isn’t as strong, says Brian Kelly.
It would surprise me to see the weak dollar and strong S&P correlation start to break down, adds Joe Terranova. Dollar strength on Friday was due to better than expected employment data and that's good for stocks.
AFTER HOURS ACTION: BOEING
The traders are closely watching Boeing after a report in Aviation Week said, "Boeing has told several of its early 787 customers about delivery delays of up to 10 months."