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UPDATE: Rightfully Optimistic Or Way Too Complacent?

Wednesday, 29 Dec 2010 | 6:08 PM ET

Should you be anything but bullish on stocks? That’s the chatter on the Street Wednesday as investors eye what’s shaping up to be the best December in nearly two decades.

The S&P 500 has gained 6.7 percent so far this month and has risen in 17 of the last 20 sessions.

Not only is the market trading above levels reached on Sept. 12, 2008, the last trading day before Lehman Brothers collapsed, it’s on course for its best December since 1991.

And sentiment on the Street is certainly optimistic.

A recent Trim Tabs/ BarclayHedge survey showed hedge fund managers have turned extremely upbeat on U.S. equities - about 46 percent of 92 managers surveyed in the past week were bullish, while only 19 percent were bearish

And on the other side of the coin, short interest in the S&P 500 has fallen to just over 4%; that's the lowest level in over 4 years, according to Bespoke.

Are investors rightfully optimistic or way too complacent in their expectations of further gains? How should you position now?

Word on the Street
The Fast Money traders take a look at today's top business stories.

Instant Insights with the Fast Money traders

Stephen Weiss of Short Hills Capital thinks the masses have it right. "(Although) it gets me nervous when you have this kind of consensus," he says, "I believe long equities is the right trade for 2011. I full expect to see a strong January effect (a historical period of buying in January.)

Todd Gordon of Aspen trading is a little more cautious. “There was an interesting gap down in the Vix in early December,” he reminds. (At the time) it set up an 80-handle rally in the S&P. Now we’ve just gapped up in the Vix and I’m wondering if it foreshadows lower stock prices.”

Gordon is also watching the put/call ratio, which over the last 48 hours has rallied in favor of puts. “With a higher stock market I take it to mean options investors are getting nervous and uncertain about the calendar turn.”

OptionMonster Jon Najarian sees the recent flurry of put buying a little differently. Instead of a bet lower; he sees interest in puts as bullish protection against a long position. “I think what you’re seeing is investors getting out of short positions,” he says, "because anyone who’s tried to short this market has gotten run over.”

Brett Arends of the Wall Street Journal tells the Fast Desk during a live interview that he does not believe in the rally. Not one bit.

"From these levels I am more nervous than cheerful," he says. "Valuations, leverage and sentiment make me nervous." In fact, he sees ten reasons to be skeptical and he wrote about them. Click here to go to the Wall Street Journal’s website and read his article “Why I Don’t Believe In This Santa Claus Rally.What do you think? We want to know!

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*please note insights in this post were compiled from both Fast at 5 and the Halftime Report.




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OPPORTUNITIES AND DANGERS IN THE LIGHT TRADING

While the market has crept higher this month, it's done so with an incredible lack of volume and volatility.

What are your best trading strategies in this kind of environment? Find out from Dennis Gartman. Watch the video now!

Good Bye Pork Bellies
Pork bellies are in danger of going belly up, with Dennis Gartman, The Gartman Letter.

Read More:
> Low Volume Days: The Cat's Away But Will Mice Play?



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Trader disclosure: On December 29, 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 long U.S. Treasuries; Cortes is short (XRT) vs. (SPY); Cortes owns (TSN); Cortes is short (XHB) vs. S&P futures; Jon Najarian owns (AAPL), is short (AAPL) calls; Jon Najarian owns (AGU), is short (AGU) calls; Jon Najarian owns (BBT), is short (BBT) calls; Jon Najarian owns (BBY), is short (BBY) calls; Jon Najarian owns (BJ), is short (BJ) calls; Jon Najarian owns (BTU), is short (BTU) calls; Jon Najarian owns (CSCO), is short (CSCO) calls; Jon Najarian owns (GS), is short (GS) calls; Jon Najarian owns (MCP), is short (MCP) calls; Jon Najarian owns (NFLX), is short (NFLX) calls; Jon Najarian owns (NKE), is short (NKE) calls; Jon Najarian owns (REE), is short (REE) calls; Jon Najarian owns (SWN); Pete Najarian owns (BBY) calls; Pete Najarian owns (C); Pete Najarian owns (F) bonds; Pete Najarian owns (GE); Pete Najarian owns (MS); Pete Najarian owns (NKE) call spreads; Pete Najarian owns (PFE); Pete Najarian owns (RSX); Pete Najarian owns (YHOO); Pete Najarian owns (MSFT) call spreads; Gordon is long U.S. Treasuries; Weiss owns (FAS), (NIHD), (VZ), (QCOM), (BJS), (MEE), (COP), (DVN), (HK); Weiss owns (NFLX) puts

DENNIS GARTMAN
Funds Managed by Dennis Gartman Are Short the Euro

LANCE HELFERT
Helfert And West Coast Asset Management Own (BR), (TAP), (LYV)

DAVID RIEDEL
Riedel has no disclosures

BRETT ARENDS
Arends has no disclosures

PETE NAJARIAN SOT
Pete Najarian owned (RSX) on 12/28/2010

STEVE CORTES SOT
Cortes was short
Oil on 11/01/2010

MIKE KHOUW
Cantor Fitzgerald & Co. has no disclosure in (BTU)

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