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Halftime: Goldman Sachs Driving Market Gains?

With both the Dow and S&P adding to gains on Thursday, investors are eager to know what’s behind the rally and if it can continue.

The Fast Money desk drew back the curtain on the sharp market moves and although there was no great and powerful Oz - there was the great and powerful Goldman Sachs!

The desk thinks a rather optimistic note from Goldman Sachs out Thursday that's bullish on the economy as well as the largest part of the stock market may have given bulls new reasons to run.

”These are pretty impressive calls out of Goldman,” explains Guy Adami.

Take a look at what they’re saying:
- More bullish US GDP 2011: 2.7%
- More bullish S&P 500 by 2012: 1450
- Financials to 'Overweight'

The stronger growth forecast really made the Street sit up and take notice with manywidely followed websites and bloggers commenting that the positive tone was noteworthy in and of itself.

What’s the trade? How should you position now?

Instant Insights with the Fast Money traders

The Vix got crushed on Thursday; it broke below 20, says Jon Najarian, that's a big deal. I take it as an endorsement of this note out of Goldman and that investors now believe in the rally. Personally, I don’t think we’ve seen the highs for the year yet. Also we're seeing a breakout in the financials, which is also bullish.

I was surprised by this rally after Wednesday’s sharp move higher, says Steve Grasso. I think we may be at the upper end of a range. However technicals suggest if the S&P blows past 1228 – the market could go up, up and away.

I’ve been negative but there’s no denying market action has been impressive, says Guy Adami. I think now investors have a defined stop. On the downside, 1173 is the key level. The market has tested that level several times and its held.

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GOLDMAN SACHS ON FINANCIALS

As you might have noticed above - an upgrade of the banking sector to overweight was among Goldman's calls; this is the first time Goldman has been positive on the sector since 2008.

"When you get a shop like Goldman out supporting the sector, it can't help but boost investor confidence," says Michael Nix, principal at Greenwood Capital Associatesin a Retuers interview.

Because Goldman is predicting a steeper yield curve, they say long The BKX is their best trade going into 2011, explains host Melissa Lee. Following are some other favorites

Goldman Sachs' Top Bank Picks
JPMorgan
Citi
Bank of America
Principal Financial Group
Blackstone Group
Invesco
Evercore
TD Ameritrade
Stifel
State Street
Simon Property Group
Dr Horton

What’s the trade?

I was bullish earlier in the week but I’ve already taken profits in Bank of America, says Steve Cortes. I don’t believe in the long-term story of the banks.

I think there’s still incredible headline risk in these names, says Guy Adami. I’d take profits and even consider putting shorts out.

I’m buying calls in JPMorgan, Citi , Bank of America and in Goldman, counters Jon Najarian. I’m looking for a breakout to the upside.

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BULLISH HOUSING

It’s not just banks; Goldman Sachs is also getting bullish on housing and called Dr Horton its best buy in the space.

They say its best positioned given its " focus on first-time homebuyers, its effective spec-building strategy, and the inexpensive valuation."

What’s the trade?

I think the housing gains are more short covering than anything else, says Steve Grasso.

I agree that this space was over-shorted, adds Steve Cortes. I don’t see the gains as a constructive move or a signal to get long.

As far as I’m concerned the way to trade this space is longHome Depot, says Guy Adami.

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ANALYZE THIS: EURO

Why did the euro rally on Thursday? Is it simply a dead cat bounce? Or is it sustainable?

Find out from Jens Nordvig of Nomura global head of G10 FX strategy



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Trader disclosure: On December 2, 2010, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Cortes is short (XRT); Cortes is long S&P 500; Cortes is short (LVS); Cortes is long (TSN); Cortes is long USD vs. Mexican Peso, Australian Dollar, Euro; Cortes is long U.S. 2-year Treasuries; Grasso owns (ASTM), (BA), (BAC), (BWC), (C), (CSCO), (JPM), (LIT), (LPX), (MOT), (MHY), (NDAQ), (PFE), (PRST), (X); Jon Najarian owns (AAPL), Is Short (AAPL) Calls; Jon Najarian owns (GS), Is Short (GS) Calls; Jon Najarian owns (JPM), Is Short (JPM) Calls; Jon Najarian owns (CME), Is Short (CME) Calls; Jon Najarian owns (TIF), Is Short (TIF) Calls; Jon Najarian owns (RIMM), Is Short (RIMM) Calls; Jon Najarian is long (AMZN) call spreads; Jon Najarian is long (IBM) call spreads; Jon Najarian is long (NFLX) call spreads; Jon Najarian is long (DE) call spreads; Jon Najarian is long (GT) calls; Jon Najarian is long (AA) calls; Jon Najarian is long (CMC) calls; Jon Najarian is long (C) and (XLF) calls; Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck

For 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)

Deborah Weinswig
An employee of Citigroup Global Markets or its affiliates is a trustee of Target Corp
Citi employees own (JCP), (WMT)
Citigroup Global Markets or affiliates owns 1% or more of (SKS)
Citigroup Global Markets or affiliates has managed or co-managed an offering of (HD), (TGT), (WMT) within past 12 months
Citigroup Global Msrkets or affiliates has received investment banking compensation in past 12 months from (HD), (KR), (SKS), (TGT), (WMT)
Citigroup Global Msrkets or affiliates expects to receive/seek investment banking compensation from (KR), (WMT) in next three months
Citigroup Global Msrkets or affiliate received non-investment banking compensation in past 12 months from (HD), (JCP), (KSS), (KR), (M), (SWY), (SVU), (TGT), (WAG), (WMT), (COST)
(HD), (KR), (SKS), (TGT), (WMT), are or in past 12 months were investment banking clients of Citigroup Global Markets
(CVS), (HD), (JCP), (KSS), (KR), (M), (SWY), (SKS), (SVU), (TGT), (WAG), (WMT), (COST) are or in past 12 months were non-investment banking clients of Citigroup Global Markets (securities-related services)
(HD), (JCP), (KSS), (KR),(M), (SWY), (SVU), (TGT), (WAG), (WMT), (COST) are or in past 12 months were non-investment banking clients of Citigroup Global Markets (non-securities related services)
Citigroup Global Markets is a market maker in (CVS), (M), (COST)
Citigroup Global Markets and/or affiliates has a signifcant finacnial interest in relation to (HD), (KSS), (KR), (LOW), (M), (JWN), (SWY), (SKS), (SVU), (TGT), (WMT), (COST)
Citigroup Global Markets or affiilates owns 5% or more of (SKS)


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