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Halftime: $3 Gas To Derail Recovery, Markets?

If it feels like you have to open your wallet a little wider every time you fill the gas tank, you're not imagining things.

The national average price for a gallon of gas has risen to over $3 a gallon for the first time since October, 2008 - (And as you well remember that year brought the worst economic downturn since the Great Depression.)

California once again has the highest gas prices (in the lower 48) at $3.25 while Colorado has the lowest average gas prices, about $2.75 a gallon.

Will higher prices at the pump derail the recovery - and the stock market rally?

According to Dennis Gartman, although it's possible, it probably won't happen anytime soon at least according to history. He’s put together the following chart which shows historically $3 gas gets attention - people start talking – but nothing more.

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”They don’t really start reducing driving until $3.50,” he adds. “And consumers don’t make material changes in their habits until $4. That’s still quite some way up from here.”

If you’re looking for a trade, that may bode well for the refiners, according to Joe Terranova. He says look at CVR Energy and Frontier Oil.

Patty Edwards can't shrug it off - she does find rising prices at the pump a cause for concern - at least among investors. “For every penny increase in the price of gasoline, $600 million dollars in discretionary spending comes out of the economy," she says. Yes, that’s money going to gas stations but it’s not going to retailers like Target, Macy’s or Walmart .

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BREAKING NEWS - MOLYCORP

In breaking news CNBC’s Brian Shactman tells the desk that reports out earlier in the week, which suggested Molycorp began active mining of ore at their Mountain Pass mine are in fact, incorrect.

Schactman says he spoke with representatives at the company and “although they’ve started the process of pre-stripping they are many months away from getting the ore out of the ground.

He goes on to say they’re ahead of schedule but the ore won’t come out of the ground until the last quarter of 2011 or early 2012.

Again, reports out earlier in the week which said Molycop had actively started mining are untrue.

What’s the trade?

I think the news is a negative for Molycorp, says Joe Terranova. With the stock at a 52-week high, I’d take a look.

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MARKETS

Energy and material stocks were the bright spots in the S&P 500 Tuesday in a thinly traded session in which major indexes barely budged.

Downbeat economic data kept the market in check. 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.

However, on a bullish note, a recent report showed hedge fund managers have turned extremely upbeat on U.S. equities.

The TrimTabs/BarclayHedge Survey of Hedge Fund Managers showed about 46 percent of 92 managers surveyed in the past week were bullish on the S&P 500, while only 19 percent were bearish.

"These bullish and bearish readings are the highest and lowest, respectively, since the inception of our survey in May," said Sol Waksman, founder and president of BarclayHedge.

How should you position now?

I think the hard trade is the right trade – and it’s stay long the market, says Joe Terranova. I think we may have a January that defies logic and moves higher.

I wouldn’t fight the commodity rally here because of the momentum, but the weakness in China makes me broadly cautious.

I shocked some investors when I announced I was long gold in dollar terms, adds Dennis Gartman. As far as I can tell, the trend in gold is clearly higher.

I’m long gold, silver and platinum, adds Patty Edwards. Metals are becoming a reserve currency.

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FAST FLASH: AIG

The traders are keeping a close eye on AIG, with shares nearly doubling in about one year’s time.

What’s the trade?

I wouldn’t step in and buy at $56, says Joe Terranova, but I wouldn’t short this stock either.

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MARKET BUZZKILL: HOMEBUILDERS

Homebuilders traded in the red Tuesday after the Case Shiller home price index fell for the third straight month to the lowest level since May.

What’s the trade?

I’m interested in shorting this space, but I haven’t pulled the trigger yet, says Steve Cortes. If Masco closes below $12.80 I’ll go short.

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DOLLAR OUTLOOK

Dollar weakness has been the trend in recent sessions; but will the trend endure into the new year?

Don’t make a move until you hear from Kathy Lien, director of currency research at GFT Forex.

Watch the video now!

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APPLE GETS PATENT

The traders are closely watching shares of Apple after reports suggested the firm had gotten a patent to work on new display screens for 3D TV's that can be used without 3D glasses.

What should you make of it?

It would be a game changer, says Patty Edwards, but in the meantime all it does is dampen demand for the 3D TVs that need the glasses.

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CALL OF THE DAY: GM HIGHER ON THE BACK OF STRONG INITIATIONS

The desk is also watching GM, after 7 Wall Street firms initiated coverage of the automaker with a buy now that the the quiet period has ended.

FirmRating
CitiBuy
RBC CapitalOutperform
JPMorganOverweight
Morgan StanleyOverweight
Credit SuisseOutperform
BarclaysOverweight
BofA Buy

What’s the trade?

I'd go into GM here, says Joe Terranova. I expect institutional dollars flow out of Ford and into GM.

My preference is Ford, says Patty Edwards. I think they have the stronger management team.


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WILL WE FOLLOW CHINA?

The Shanghai Index closed lower on Tuesday for the ninth out of ten days after China raised rates this weekend.

What's the trade?

I continue to be short the FXI, says David Riedel of Riedel Research. I’d keep that trade on through January and then reassess.

Here more from Riedel. 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; Terranova owns (UPL), (C), (PEP), (VRTS), (OXY), (GS); Cortes is short (LVS); Cortes is short (XRT) vs. S&P; Cortes owns (TSN); Cortes is long USD vs. the Euro; Cortes is long USD vs the Pound; Cortes is long USD vs. the Mexican Peso; Cortes is long U.S.Treasuries; Cortes is short Nat Gas

DENNIS GARTMAN
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)

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)

PATTY EDWARDS
Edwards owns (AAPL) for clients
Edwards owns (MSFT) for clients
Edwards owns (GS) for clients
Edwards owns (C) for clients
Edwards owns (CME) for clients
Edwards owns (V) for clients
Edwards owns (NKE) for clients
Edwards owns (AMZN) for clients
Edwards owns (F) for clients
Edwards owns (XLK) for clients
Edwards owns (GLD) for clients
Edwards owns (SLV) for clients
Edwards owns (GE) for clients
Edwards owns (TGT) for clients

JON NAJARIAN SOT
Jon Najarian owned (MCP), and was short (MCP) calls on 12/27/2010
Jon Najarian owned (REE), and was short (REE) calls on 12/27/2010

KATHY LIEN
Kathy Lien Is Long U.S. Dollar

DAVID RIEDEL
Riedel has no disclosures

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