Bulls have every reason to break open the champagne tonight and toast their accomplishments.
TheS&P is on track for its best December performance in nearly two decades with the index closing higher in 17 out of the last 21 sessions.
As a result, the broad market is now trading at pre-Lehman levels; and is up about 13% for the year.
However with stocks teetering on either side of break even on the last day of trading investors weren’t sure what to make of the action.
Some think the market is consolidating ahead of the next move higher, while others argue that it’s completely out steam. Skeptics say when big money returns to the market in January a sell-off will quickly follow.
How should you position now? What should you be watching?
Instant Insights with the Fast Money traders
Pete Najarian leans bullish into the new year. “I think the grinding in the S&P is consolidation ahead of more upside.” In fact he thinks the S&P has 10% more upside. "The fact that we’re rallying in December is bullish in and of itself because it generates momentum into the near year."
Also Najarian believes rotation into financials will drive the next leg with options action suggesting to him that other investors share his view. He expects the XLF to push above 16 toward 17.
However Najarian does sound at least one note of caution – and that’s the sharp move higher in oil . “If gasoline prices climb rapidly I think consumers will clamp down on spending and that’s going to generate headwinds.”
JJ Kinahan thinks the rally – or lack of one – all boils down to the financials. “In order to have the next leg up, I think financials have to lead the way,” he says.
Brian Kelly is bullish but concedes the potential of a housing double dip presents challenges. Should home prices decline significantly, it would create a strong headwind for the banks, he says.
However, in the near term BK is positive on the S&P up to 1280. And that’s in part due to the surprising resiliency of the consumer. "Just look at what happened at Disneyland this week," he says. "The crowds were so big they had to close the gates."
True to his contrariarn nature, Steve Cortes is skeptical. He doesn’t like the action in the Shanghai Composite, which he says has performed terribly; the weakness he feels is emblematic of China's slowdown. In turn, that presents headwinds for commodities. “I don’t believe there’s enough commodity demand without China to keep this bull going.”
Cortes also doesn’t like aspects of the December rally in the S&P. “What concerns me about the December rally is that tech did not lead,” he says. “In the first 11 months of the year it massively outperformed the S&P but not in December.”
UNUSUAL ACTIVITY: LAS VEGAS SANDS
Pete Najarian has spotted unusual options action in Las Vegas Sands.
A higher than usual volume in the December 48 calls suggests to Pete Najarian that some big investors are bullish.
Steve Cortes, however, doesn't share the enthusiasm. He reminds the desk that's he's short had has been since $50.
With the markets on more stable ground, the Fast Money traders are look for private equity and venture capitalists to bring more companies public next year.
Who could IPO? For insights we turned to Paul Bard of Renaissance Capital.
Although the chatter is all about Facebook, Bard tells us he doesn’t think Facebook goes public in 2011 – he says the timing is probably more 12-18 months. Instead he says the following IPOs are much more likely.
Expected Private Equity IPOs
Toys R Us
Source: Paul Bard, Renaissance Capital
Expected Tech IPOs
Source: Paul Bard, Renaissance Capital
NEW YEAR FEAR: EURO CRACK
Two bailouts later all eyes are on the euro going into 2011. It's rallying Friday, but is it headed for a breakup in this new decade?
Get the latest insights from Marc Chandler, chief global currency strategist at Brown Brothers Harriman. Watch the video now!
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Trader disclosure: On December 31st, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian owns (BG) call spreads; Pete Najarian owns (WLT) call spreads; Pete Najarian owns (MCD) call spreads; Pete Najarian owns (F) bonds; Pete Najarian owns (AXP) call spreads; Pete Najarian owns (V) call spreads; Pete Najarian owns (YHOO); Pete Najarian owns (MSFT) call spreads; Cortes is short (XRT) vs. S&P; Cortes is short (XHB) vs. S&P; Cortes is short (LVS); Cortes is short (BCS); Cortes owns (TSN); Cortes owns (EXC); Cortes is long USD vs. Mexican peso; Cortes is long Treasury Bonds; Cortes is short Gold; Cortes is short Corn; Kinahan is short (NFLX); Kinahan owns (CSCO); Kinahan is short (YHOO) calls; Kinahan is short (MSFT) calls; Kinahan is short (SPY); Kinahan owns (C); Kinahan is short (BAC) puts; Kinahan owns (TBT) call spreads
Accounts Managed by Kanundrum Capital own (FCX)
Accounts Managed by Kanundrum Capital own (GLD)
Accounts Managed by Kanundrum Capital own (GDX)
Accounts Managed by Kanundrum Capital own (GDXJ)
Accounts Managed by Kanundrum Capital own (SWC)
Accounts Managed by Kanundrum Capital own (XLE)
Accounts Managed by Kanundrum Capital own (OIH)
Accounts Managed by Kanundrum Capital own (JPM)
Accounts Managed by Kanundrum Capital own (WFC)
Accounts Managed by Kanundrum Capital own (BBT)
Accounts Managed by Kanundrum Capital own USD
Accounts Managed by Kanundrum Capital own (TBT)
Accounts Managed by Kanundrum Capital own (SLV)
Accounts Managed by Kanundrum Capital are short the Euro
Chandler has no disclosures
Bard has no disclosures
CNBC.com with wires.