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Halftime: Insider Probe To Derail Financials?

Monday, 22 Nov 2010 | 1:30 PM ET

Banks traded sharply lower on Monday, with Goldman Sachs, JPMorgan and BofA leading the market into negative territory.

Selling dominated the financial sector after word surfaced that Ireland’s parliament may have trouble passing an austerity budget.

Adding to the headwinds, Barclays came out with a note saying banks could face a $150 billion capital shortfall when the new Basel III capital standards are implemented.

However the Fast Money traders believe the worst headwinds are due to reports suggesting Wall Street is facing a vast insider trading probe.

According to the WSJ, “Federal authorities are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation.”

FBI Raids Two Hedge Funds
Search warrants were issued for two funds, with CNBC's Mary Thompson.

Meanwhile, CNBC’s Mary Thompson tells the desk that FBI agents just raided the offices of Diamondback Capital Management and Level Global Investors, run by former managers of Steve Cohen's SAC Capital Advisors, again according to the Journal. The rapid fire developments show how serious and potentially widespread the probe may be.

Due these reports have the potential to rock Wall Street? Should you assume bank stocks are seriously challenged now?

Instant Insights with the Fast Money traders

It seems a Street fight is breaking out with the pros clearly unable to agree on whether the hottest trade of the year has any more room to run. We’re talking commodities.

The XLF fell apart after getting up near the 200-day moving average on November 4th, says Pete Najarian. That alone is troublesome. But the action on Monday wasn't good at all. If the XLF breaks below 14.50 I think we’re looking at a real problem to the downside.

Ahead of the broadcast, Steve Grasso tells us that technicals put the S&P in a critical range. And on Friday's show he adds, the next key levels for me are 1172 on the downside and 1229 on the upside. There's a lot of air in the charts and if we break one way or another, either bulls or bears may be off to the races.

Looking at financials more closely, I don’t think the financial space is where investors should be looking for upside, says Zach Karabell. On top of the issues mentioned above, there’s the mortgage overhang, the put back issue, and other concerns. That’s a long list of reasons not to be aggressive in this space. This is just icing on the cake that’s getting ever more delicious for shorts.

I’m long XLF but I’m not that happy with it, reveals Brian Kelly. Zach just listed off all the problems facing banks. On the other hand, we need a functioning banking system. That suggests to me ultimately the issues is resolved and banks go higher. But I'd play it with a straddle.

On a relatively positive note I’m seeing selective put buying – in Goldman, JPMorgan and BofA, adds Pete Najarian. The put buying could put a floor under these 3 names. But I'm not seeing the put buying broadly.

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BLACK FRIDAY TRADE

Time to talk retail. Take a look at the run up in the S&P Retail ETF.

Over the past 3 months the ETF is up over 20% while the broad S&P is 11% higher.

Which stocks will keep up the momentum as we head into Black Friday?

I'd look at Walmart , says Brian Kelly. I think they're well positioned and being very aggressive into the holiday season.

I suspect this will be a better Christmas than last year, adds Zach Karabell. I’d look at the e-commerce space closely; names such as GSI Commerce .

I’d look at Amazon , says Steve Grasso. I think it’s a holiday story. And I like Tiffany .

I’m watching Dollar Tree and Dollar General , says Pete Najarian. They’re retaining new customers and growing.

What do you think? We want to know!

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UNUSUAL ACTIVITY- UNH

Pete Najarian has spotted unusual options action in UnitedHealth .

A higher than usual volume of the 35-strike to the 39-strike calls leads him to speculate this stock could pop.


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Trader disclosure: On November 22, 2010, the day this video was recorded, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian Owns (MEE) Calls. Pete Najarian Owns (WLT) Call Spread. Pete Najarian Owns (CRUS). Pete Najarian Owns (YHOO). Pete Najarian Owns (CNI). Pete Najarian Owns (AKAM) Call Spread. Pete Najarian Owns (BAC). Pete Najarian Owns (MS). Pete Najarian Owns (DO). Pete Najarian Owns (DOW). Pete Najarian Owns (TEVA). Pete Najarian Owns (PFE). Pete Najarian Owns (GDXJ) Call Spread. Pete Najarian Owns (FIRE). Zachary Karabell Owns (AAPL) and (GOOG); Grasso owns (ASTM), (BA), (BAC), (BWC), (C), (CSCO), (HPQ), (JPM), (LPX), (MOT), (MHY), (NDAQ), (PFE), (PRST) and (X).

GE Is The Parent Company Of CNBC
NBC Universal Is The Parent Company Of CNBC

BRIAN KELLY
Accounts Managed By Kanundrum Capital Own (XLK)
Accounts Managed By Kanundrum Capital Own (XLF)
Accounts Managed By Kanundrum Capital Own (C)
Accounts Managed By Kanundrum Capital Own (RTH)
Accounts Managed By Kanundrum Capital Own (SMH)
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 (IEF)
Accounts Managed By Kanundrum Capital Own (JJG)
Accounts Managed By Kanundrum Capital Own (FCX)
Accounts Managed By Kanundrum Capital Own (SWC)

ZACHARY KARABELL
River Twice Capital Owns (MSFT)
River Twice Capital Owns (SBUX)
River Twice Capital Is Short (MEE)
River Twice Capital Is Short (TSN)
River Twice Capital Is Short (SPY)
River Twice Capital Is Short (QQQQ)
River Twice Capital Is Short (XLF)

STEVE GRASSO
Stuart Frankel & Co and it’s partners own (AAPL)
Stuart Frankel & Co and it’s partners own (CSCO)
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 (HSPO)
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 Its Partners Own (UNM)
Stuart Frankel & Co and it’s partners are short (QQQQ)
Stuart Frankel & Co and it’s partners are short (MCD)
Stuart Frankel & Co and it’s partners are short (AAPL)

AARON RAKERS
Stifel Nicolaus Is A Market Maker In (HPQ)
(HPQ) Is Or was In Past 12 Months A Client Of Stifel Nicolaus Or Affiliate
Stifel Nicolaus Or Affiliate Provides Or In Past 12 Months Provided Investment Banking Services To (HPQ)
Stifel Nicolaus Or Affiliate Has Received Non-Investment Banking Compensation (Securities Related Services) From (HPQ) In Past 12 Months
Stifel Nicolaus Expects TO Receive/Seek Investment Banking Compensation From (HPQ) In Next 3 Months
Stifel Nicolaus Or Affiliate Provides Or In Past 12 Months provided Non-Investment Banking Securities Related Services To (HPQ)
(CVLT) Is Or In Past 12 Months Was A Client Of Stifel Nicolaus Or Affiliate
Stifel Nicolaus Expects To Receive/Seek Investment Banking Compensation From (CVLT) In Next 3 Months
Stifel NIcolaus Is A Market Maker In (CVLT)

River Twice Capital Owns (GS)
River Twice Capital Owns (GSIC)

CNBC.com with wires.

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