Pros: An Early Glimpse of Next Year’s Nightmare?

The S&P continued its end of year melt-up on Tuesday with bulls pushing ahead after new sales data confirmed that U.S. retailers are poised to show their best holiday season in three years.

But that’s not to say there isn’t cause for concern.

Consumer confidence unexpectedly deteriorated in December, hurt by increasing worries about the labor market, while the price of U.S. single-family homes fell almost double the expected pace in October.

Meanwhile, the average price of a gallon of gas topped $3 and the threat of higher rates surfaced again after the auction of 5-year notes drew dismal demand, which drove yields higher.

Considering the growing number of negative catalysts, has the S&P topped out?

Instant Insights with the Fast Money traders

Joe Terranova tells the desk not to worry. He thinks the market has reacted impressively in the face of negative catalysts. “China raised interest rates earlier in the week but there was a tremendous resiliency in the market,” he says. “Yes the 5-year auction was dismal but I think that was due to rotation.” In other words he thinks weakness in the bond auction was positive – a sign that investors prefer putting money to work in stocks.

Dennis Gartman agrees with Terranova. “The risk-on trade is back,” he says. He thinks the China rate hikes as will as rising yields are positives. “The world is growing again and I think investors want to own a piece of the growth.”

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Todd Gordon of Forex.com is more concerned about the technicals – specifically the breakdown in the Shanghai Composite. “The Shanghai closed lower on Tuesday; that's the 9th time it's done that in 10 days. I’m becoming concerned about the risk on trade.”

Pete Najarian is also turning cautious. “We rely on China for commodities demand,” he reminds “If Shanghai continues to break down I suspect we’re looking at a real challenge for commodities. And in turn that could drag down the S&P broadly. Also I’m concerned about $4 copper ,” he adds. “That’s the level where copper broke down last time.”

Brian Kelly worries that inflation could kill the rally. “Ben Bernanke’s plan to reignite the economy involves printing money,” he says. “If yields rise, the effectiveness of QE2 may be stymied by sharply higher prices.”

Pete Boockvar thinks investors should sell any rally into January. He expects a global rise in interest rates will create a ceiling in equity markets. “Better economies don’t necessarily equate to better stock markets if higher inflation and higher interest rates follow.”

What do you think? We want to know?
















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ARE BANKS THE HOT TRADE OF 2011?

The financials have been the wild card in this market with some traders betting this lagging sector is about to play catch up in a big way.

Others however, say any rally is meant to be sold due to lingering concerns about the mortgage mess.

How should you play it?

Find out from Sandler O’Neil analyst Jeff Harte. Watch the video now!




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Trader disclosure: On December 28th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Funds Managed By Dennis Gartman Own Gold; Funds Managed By Dennis Gartman Own Wheat; Funds Managed By Dennis Gartman Own Soybeans; Funds Managed By Dennis Gartman Own Crude Oil; Funds Managed By Dennis Gartman Are Short Euro; Funds Managed By Dennis Gartman Own (NSC); Funds Managed By Dennis Gartman Own (MOS); Funds Managed By Dennis Gartman Own (RJA); Funds Managed By Dennis Gartman Own (SWC); Funds Managed By Dennis Gartman Are Short (DB); Terranova owns (UPL), (C), (PEP), (VRTS), (OXY), (GS); Pete Najarian owns (BBY) calls; Pete Najarian owns (C) stock; Pete Najarian owns (F) bonds; Pete Najarian owns (GE); Pete Najarian owns (MSFT) call spreads; Pete Najarian owns (MS); Pete Najarian owns (NKE) call spreads; Pete Najarian owns (PFE); Pete Najarian owns (RSX)

JOE TERRANOVA
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (ALK)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EPR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (MGRC)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DRYS)

TODD GORDON
Gordon is long U.S. Treasuries

BRIAN KELLY
Accounts Managed by Kanundrum Capital Own (ANDE)
Accounts Managed by Kanundrum Capital Own (BG) calls
Accounts Managed by Kanundrum Capital Own (DE) call spreads
Accounts Managed by Kanundrum Capital Own (JJG)
Accounts Managed by Kanundrum Capital Own (JJC)
Accounts Managed by Kanundrum Capital Own (GLD)
Accounts Managed by Kanundrum Capital Own (GDXJ) calls
Accounts Managed by Kanundrum Capital Own (TBT)
Accounts Managed by Kanundrum Capital Own USD
Accounts Managed by Kanundrum Capital Own (BBT)
Accounts Managed by Kanundrum Capital Own (FCX)
Accounts Managed by Kanundrum Capital Own (SLV)
Accounts Managed by Kanundrum Capital Own (MCP)
Accounts Managed by Kanundrum Capital Own (LYC)
Accounts Managed by Kanundrum Capital Own (AU)
Accounts Managed by Kanundrum Capital Are Short the Euro
Accounts Managed by Kanundrum Capital Are Short the Yen
Accounts Managed By Kanundrum Capital Own (MCP) and (MCP) put spreads

JEFF HARTE
Sandler O'Neill Has Received Investment Banking Compensation From (BAC), (C), (JPM) In Past 12 Month
Sandler O'Neill Expects To Receive/Seek Investment Banking Compensation From (BAC), (BK), (C), (JEF), (JPM), (NTRS) In Next 3 Months
Sandler O'Neill Has Received Non-Investment Banking Compensation From (BAC), (C), (GS), (JPM), (MS), (NTRS)
(BAC), (BK), (C), (GS), (JPM), (MS), (NTRS) Is A Client Of Sandler O'Neill (Non-Investment Banking Securities-Related Services)
(BAC), (C), (JPM) Was An Investment Banking Client Of Sandler O'Neill
Sandler O'Neill Is A Market Maker In (NTRS)

PETER BOOCKVAR
Boockvar Is Long Commodities Through ETFs
Boockvar Is Short Treasuries Through ETFs

ANTHONY SCARAMUCCI SOT
Skybridge Capital Owned (RAI) on 6/16/2010

JOSH BROWN
Brown And His Clients Own (MOO), (DBA)

SCOTT NATIONS
Scott Nations has no disclosures

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