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Halftime: Rightfully Optimistic Or Way Too Complacent?

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?

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.”

What do you think? We want to know!

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ALL EYES ON EURO

The euro traded higher on Wednesday against a lower dollar. Can the euro sustain its gains?

What’s the trade?

I don’t think euro weakness is over, says Todd Gordon.

And we may be seeing higher rates in the US market, adds JJ Kinahan. That suggests to me a stronger dollar is coming.

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FINANCIALS

Although financials have been the best performing sector this month -- up about 10 percent - the sector dragged a bit Wednesday.

Best Performing Sectors / December 2010
Financials ^10%
Materials ^9%
Energy ^8%
Source: Sector SPDR

What’s the bank trade, now?

I’m watching BofA , says JJ Kinahan. A large volume of the 14 calls in both January and February suggest there’s a bullish bias in this name.

I’m bullish banks broadly, adds Stephen Weiss, because I think loan demand comes back.

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SILVER - SPECULATION OR SHORTAGE?

As silver prices continue to soar to 30 year highs and grab the headlines, we have to ask; can this metal possibly climb much higher?

I think silver has a lot more room to run, says Rich Ilczyszyn of Lind-Waldock. I think we could see $35 in the first part of the year. And seasonal demand increases January to April.

As far as I’m concerned silver is in a classic bubble, counters Stephen Weiss. I think it’s a lot of speculation and not true buying from an industrial standpoint. Look at the chart of silver, and to me it looks a whole lot like housing or Internet a few years ago.












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RETAIL RIPE FOR THE PICKING

BJ'S spiked on Wednesday on reports private equity firm Leonard Green & Partners is considering a hostile bid for the company.

What other retailers should be on your radar as potential takeover targets?

I’m seeing unusual action in Children’s Place, says Jon Najarian. The chatter suggests some private equity or perhaps another retailer may be interested.

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TICK BY TICK: FERTS

Jon Najarian is closely watching the action in the fertilizer stocks, which surged on Wednesday.

Agrium, Mosaic and Potash are all trading much higher than normal volume, says Najarian.

I’d use any weakness in Mosaic as a buying opportunity, says JJ Kinahan.

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TRADE UPDATE: RARE EARTHS

What a wild ride in the rare earths space this week. After media reports suggested that Beijing would cut exports of the metals by 11 percent next year, China came out with a statement saying it was still undecided about its output.

How should you game the space now?

I’m seeing sellers of calls, says Jon Najarian, I think the trade may have topped out – at least in the near term.





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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; Jon Najarian owns (AAPL), is short (AAPL) calls; Jon Najarian owns (NFLX), is short (NFLX) calls; Jon Najarian owns (MSFT), is short (MSFT) calls; Jon Najarian owns (IBM), is short (IBM) calls; Jon Najarian owns (GS), is short (GS) calls; Jon Najarian owns (MS), is short (MS) calls; Jon Najarian owns (NKE), is short (NKE) calls; Jon Najarian owns (MOS), is short (MOS) calls; Jon Najarian owns (ADBE), is short (ADBE) calls; Jon Najarian owns (WMT), is short (WMT) calls; Jon Najarian owns (CSCO), is short (CSCO) calls; Jon Najarian owns (BJ), is short (BJ) calls; Jon Najarian owns (REE), is short (REE) calls; Jon Najarian owns (MCP), is short (MCP) calls; Jon Najarian owns (NBL), is short (NBL) calls; Jon Najarian owns (PLCE), is short (PLCE) calls; Jon Najarian owns (MOS), is short (MOS) calls; Jon Najarian owns (AGU), is short (AGU) calls; Jon Najarian owns (BBY), is short (BBY) calls; Kinahan owns (MSFT), (BAC), (YHOO), (C), (CSCO), (MOS), (GE), (ORCL), (TBT); Kinahan is short (NFLX); Kinahan is short (SPY); Weiss Owns (FAS), (TBT), (UUP), (VZ), (SWC), (HPQ), (ADBE); Weiss Owns (NFLX) Puts; Gordon is long U.S. Treasuries

RICH ILCZYSZYN
Ilczyszyhn has no disclosures

CNBC.com with wires.

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Price
 
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S&P 500
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AGU
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BAC
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MOS
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PLCE
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POT
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SPDR FIN SEL
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