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Bulls Storm First Session of 2011, But Is Caution Warranted?

Monday, 3 Jan 2011 | 7:10 PM ET

Trading in 2011 began with the bulls stampeding down Wall Street, but is it a good idea to use some caution moving forward?

Stocks greeted the new year with a rally on Monday as encouraging signs about the outlook for manufacturing around the world prompted investors to inject new money into the market.

Data from the USA, Europe and China set the tone, helping the Dow and S&P reach new two-year highs and the Nasdaq 100 closed at its highest in nearly 10 years, but some on the "Fast Money" desk think caution may be warranted in the short term.

Karen Finerman of Metropolitan Capital Advisors, for example, doesn't get why stocks are worth more on a Monday than they were on a Friday. Maybe it's just that people are getting back into the markets, she mused.

Guy Adami, managing partner at Drakon Capital, said if you are not sure of this rally, he would look to start selling at around the 1,280 level in the S&P 500. He thinks the market could soon take a breather, as it approaches that level. Either way, he called the move to the upside "impressive" and likes the price action.

Tim Seymour, founder of EmergingMoney.com, said the markets are finally reacting to good economic data. The U.S. manufacturing sector, for example, grew for a 17th straight month in December, while U.S. construction spending increased in November to its highest level since June. The global outlook also was bolstered after data showed China's factory inflation cooled in December, while manufacturing in Europe accelerated.

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

In the options market, optionMONSTER.com's Pete Najarian noted volume has returned. Last week, roughly 9 million contracts a day traded hands, but 16.5 million contracts traded on Monday. Most of the activity, he said, was in the banks.

Financials led the way higher after underperforming the market last year. Bank of America jumped 6.4 percent to $14.19 after it agreed to pay $2.8 billion to mortgage finance giants Fannie Mae and Freddie Mac to settle claims over soured mortgages. The options activity in the financials was to the upside, said Najarian. Citigroup had the most activity with 1.2 million contracts having exchanged hands.

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TRADING TECH

In the technology space, Najarian noted that Hewlett-Packard is trading at a single digit price/earnings ratio for 2011. Looking at potential growth in enterprise areas, he thinks HPQ is simply "too cheap" to pass up.

Finerman agreed with Najarian, adding that she's been in HPQ for some time. She likes the stock at current levels.

Elsewhere in the tech sector, Adami noted that people are "starting to wake up" to Oracle . The stock is at its highest price in years, but valuation-wise, he said it's still attractive.

Brian Kelly, founder of Kanundrum Capital, prefers IBM to HPQ. He said IBM is currently trading at 13 times next year's earnings, which is a reason Finerman said she also likes this stock right now.

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WHAT'S NEXT FOR APPLE?

Apple's stock rose after Oppenheimer raised its price target for the maker of the iPad to $385 a share from $345, and boosted its full-year earnings estimate to $20.62 a share from $19.01.

Apple's All-Time High
What's next for Apple? Yair Reiner, Oppenheimer & Co. weighs in.

The iPhone will be a big story for Apple this year, said Yair Reiner, an analyst at Oppenheimer. He cited the potential for Verizon to offer the iPhone later this year, and stronger iPad sales.

Watch the video to see the full conversation with Reiner.

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BANK OF AMERICA'S WOES BEHIND IT?

Bank of America added to the enthusiasm for the first trading day in 2011, as the company's shares soared on news it paid $3 billion to settle claims regarding poorly underwritten mortgages sold to government sponsored entities Fannie Mae and Freddie Mac.

So can BAC finally put the credit crisis behind it or will put-backs continue to plague the financial institution?

For answers, Institutional Risk Analytics managing director Chris Whalen spoke with the "Fast Money" desk.

Watch the videoto see the full report—it starts at 7:00.

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COMMODITIES REVERSE IN LATE TRADING

Commodities started the year strong with gold and copper hitting new record highs, but rolling over in late trading.

The turn around, said Adami, is concerning. For those waiting to sell, now is a good time.

Kelly said copper has been one of his fave metals, but the reversal caused him to buy puts on Freeport McMoRan .

Najarian continues to like shares of Walter Energy , which is trading at a 12 p/e for 2011. The stock tends to open high, hit new highs and then pullback. But valuation-wise, he thinks it's worth looking at.


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Trader disclosure: On Jan. 3, 2011, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Tim Seymour owns (BAC), (F), (FXI), (GE), (GOOG), (MON), (MOS), (POT) and (YHOO). Guy Adami owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU) and (YHOO). Karen Finerman owns (AAPL), (BAC) and (MSFT). Pete Najarian owns (AXP), (CNI), (MRO), (RSX), (PAL), (NTRS), (TEVA), (PFE) and (YHOO). Pete Najarian owns (AKAM) call spreads. Pete Najarian owns (BBY) calls. Pete Najarian owns (C). Pete Najarian owns (DB) calls. Pete Najarian owns (DRYS). Pete Najarian owns (F). Pete Najarian owns (GE). Pete Najarian owns (GM) call spreads. Pete Najarian owns (LBY) calls. Pete Najarian owns (MSFT) and (MSFT) calls. Pete Najarian owns (TCK) call spreads

GE is the parent company of CNBC
NBC Universal is the parent company of CNBC

GUY ADAMI
Adami's wife works at (MRK)

KAREN FINERMAN
Finerman's firm is short (IJR)
Finerman's firm is short (MDY)
Finerman's firm is short (SPY)
Finerman's firm is short (IWM)
Finerman's firm is long S&P puts
Finerman's firm is long Russell 2000 puts
Finerman's firm owns (IBM)
Finerman's firm owns (JPM) and (JPM) leaps

BRIAN KELLY
Accounts Managed By Kanundrum Capital Own (FCX)
Accounts Managed By Kanundrum Capital Own (JPM)
Accounts Managed By Kanundrum Capital Own (MS)
Accounts Managed By Kanundrum Capital Own (BBT)
Accounts Managed By Kanundrum Capital Own (DE)
Accounts Managed By Kanundrum Capital Own (ANDE)
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 (DRYS) calls
Accounts Managed By Kanundrum Capital Own (TBT)
Accounts Managed By Kanundrum Capital Own (QCOM)
Accounts Managed By Kanundrum Capital Own (WFC)
Accounts Managed By Kanundrum Capital Own (XLE)
Accounts Managed By Kanundrum Capital Own (OIH)
Accounts Managed By Kanundrum Capital Own USD
Accounts Managed By Kanundrum Capital Are Short The Euro

CHRIS WHALEN
Whalen has no disclosures

JORGE BERISTAIN
Deutsche Bank and/or its affiliate(s) own 1% or more of any class of common equity of (AA)
(AA) is an Investment Banking client of DBSI
Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from (AA) within the past year
(AA) has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services

YAIR REINER
Oppenheimer & Co. Is A Market Maker In (AAPL)
Oppenheimer & Co. Is A Market Maker In (OTVI)
***NO DISCLOSURES ON AUO, GLW

DAVID RIEDEL
Riedel has no disclosures

KATHY LIEN
Lien is long USD
Lien is long Oil
GFT makes a market in the U.S. Dollar, Australian Dollar, and Euro

MIKE KHOUW
Cantor Fitzgerald & Co is a market maker in (POT)

CNBC.com and wires

  Price   Change %Change
BAC
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C
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FCX
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HPQ
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IBM
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ORCL
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VZ
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WLT
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AAPL
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  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

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