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Dow Close Above 12,000, All-Clear Signal?

Tuesday, 1 Feb 2011 | 6:26 PM ET

Bulls were off to the races on Tuesday after two new signs suggested that the economy was not only improving, it was looking downright robust.

Before the bell, UPS ignited stock market gains after the company forecast record profits for 2011. Also, the latest ISM data cheered investors after it showed the U.S. manufacturing sector grew at its fastest pace in nearly seven years.

The results ignited a triple digit gain in the Dow and pushed the blue chip index to a close above the psychologically important 12,000 level for the first time since June 2008. Meanwhile, the S&P 500 closed above 1,300 for the first time since August 2008.

Are the gains sustainable? How should you position now?

Instant Insights with the Fast Money traders

If you want to establish a new position, “I think you can trade against 1300 in the S&P,” Fast trader Guy Adami counsels. What was resistance becomes support. Adami admits he's been bearish but says he 'respects' the price action. “Don’t discount the force or severity of the move higher,” he says.

Brian Kelly thinks the rally had everything to do with massive covering by hedge funds. “A lot of investors were shooting against 1300 in the S&P,” he explains “and as the market accelerated they had to cover their shorts.” However, his comments suggest the rally may have further room because in this environment money managers can't risk underperforming.

Always the contrarian Steve Cortes sees a potential crack. “Stocks are well above their December highs yet the Vix is holding its December lows. That suggests options investors are skeptical of the rally. But I wouldn't short, yet.”

Keith Wirtz, Fifth Third Asset Management president and CIO is on the other side of the trade entirely. Though he admits the rally on Tuesday was powerful he can't shake concerns that the market is over extended.

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

“The stock market is up 24% since September 2010 and more than 80% of the companies in the S&P are now above their 200-day moving average," he says. "I’m anticipating some kind of pullback."

Wirtz had thought the crisis in Egypt would be the catalyst to trigger the correction, but it appears that’s probably not the case. However, he still sees two negative catalysts.

”Things will quiet down in the end of February and the quiet period could create vulnerability. (Also), the budget negotiations might take the market down.”

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UNDER THE RADAR WINNER

The traders are watching the action in chemical maker Albemarle , which received an upgrade to overweight from Neutral at JPMorgan.

How should you game this space?

I think valuations are fair in Albermarle, says Guy Adami. However if you’re a trader Cytech usually makes bigger moves.

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AFTER HOURS ACTION: BROADCOM

Shares of Broadcom slipped in extended trade after the company said its revenue would decline in the next quarter.

Looking at the numbers, Broadcom posted a 45 percent increase in fourth-quarter revenue to $1.95 billion from $1.34 billion a year ago, compared with analysts' average expectation for $1.9 billion, according to Thomson Reuters I/B/E/S.

The supplier of chips used in consumer electronics and network equipment, said its profit rose to $266 million, or 47 cents per share, compared with $59 million, or 11 cents per share, in the same quarter a year ago.

What’s the trade?

The stock has had a tremendous run, says Guy Adami. Now I think it trades down to $40.



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Trader disclosure: On Feb 2, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Adami's wife works for (MRK); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman's firm is short (IJR); Finerman's firm is long S&P puts; Finerman's firm is long Russell 2000 puts; Finerman owns (AAPL); Finerman's firm owns (AAPL); Finerman owns (BAC); Finerman's firm owns (BAC) leaps; Finerman's firm owns (BBY); Finerman owns (BP); Finerman's firm owns (BP); Finerman owns (C); Finerman's owns (GOOG); Finerman owns (HPQ); Finerman's firm owns (HPQ); Finerman's firm owns (IBM); Finerman owns (JPM) and (JPM) leaps; Finerman's firm owns (JPM) and (JPM) leaps; Finerman's firm owns (MCD); Finerman owns (MSFT); Finerman's firm owns (MSFT); Finerman's firm owns (TGT); Cortes is long U.S. Treasuries; Cortes owns (TSN); Cortes owns (EXC); Cortes owns (MO); Cortes owns (PM); Cortes owns (GS); Cortes owns (MS); Cortes owns (SVU); Cortes is short (LVS); Cortes is short (BAC); Cortes is long U.S. Treasuries; Cortes owns (TSN); Cortes owns (EXC); Cortes owns (MO); Cortes owns (PM); Cortes owns (GS); Cortes owns (MS); Cortes owns (SVU); Cortes is short (LVS); Cortes is short (BAC)

BRIAN KELLY
Accounts Managed By Kanundrum Capital Own (ATW)
Accounts Managed By Kanundrum Capital Own (BAC)
Accounts Managed By Kanundrum Capital Own (EBAY)
Accounts Managed By Kanundrum Capital Own (GLD)
Accounts Managed By Kanundrum Capital Own (MS)
Accounts Managed By Kanundrum Capital Own (SLV)
Accounts Managed By Kanundrum Capital Own (DBA)
Accounts Managed By Kanundrum Capital Own (JJG)
Accounts Managed By Kanundrum Capital Own (MON)
Accounts Managed By Kanundrum Capital Own (ATW)
Accounts Managed By Kanundrum Capital Own (RDC)
Accounts Managed By Kanundrum Capital Own (TLT)
Accounts Managed By Kanundrum Capital Are Short Australian Dollar
Accounts Managed By Kanundrum Capital Are Short The Yen

JOSHUA BROWN
Brown owns (AAPL) for clients
Brown owns (AIG) and for his clients
Brown owns (AMZN) for clients
Brown owns (ARMH) for clients
Brown owns (AXP) for clients
Brown owns (BA) for clients
Brown owns (BAC) for clients
Brown owns (BP) for clients
Brown owns (C) and for his clients
Brown owns (CSCO) for clients
Brown owns (F) for clients
Brown owns (FCX) for clients
Brown owns (GE) and for his clients
Brown owns (GS) for clients
Brown owns (GDXJ) for clients
Brown owns (GLD) for clients
Brown owns (HPQ) for clients
Brown owns (JPM) and for his clients
Brown owns (MSFT) for clients
Brown owns (MS) for clients
Brown owns (QCOM) and for his clients
Brown owns (VZ) for clients
Brown owns (WFC) and for his clients
Brown owns (COW) for clients

RICH ILCZYSZYN
Ilczyszyn Has No Disclosures

KEITH WIRTZ
Wirtz has no disclosures

KEVIN CRISSEY
Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from (UAL)
UBS AG, it's affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from (UAL), (LCC) in next three months
(UAL) is an investment banking client of UBS Securities within the past 12 months
UBS AG, its affiliates or subsidiaries own 1% or more of a class of (UAL), (LCC) common equity
UBS Securities LLC is a market maker in (JBLU), (UAL), (LCC)
UBS Securities LLC is acting as an advisor to Continental Airlines on its announced agreement to merge with UAL Corp

ALEXANDRA LEBENTHAL
Lebenthal has no disclosures

RON SHAH
Shah has no disclosures

WILLIE WILLIAMS
Societe Genarale facilitates transactions in tradeable currencies

SCOTT NATIONS
Nations has no disclosures

FAST MONEY 360
Stifel Nicolaus is a market maker in (CVS)

GUY ADAMI FAST FIRE 12/21/2010
Adami had no disclosures in (JEF) on 12/21/2010

Comcast is the parent company of CNBC
Comcast is the parent company of NBCUniversal
GE owns 49% of NBCUniversal
GE owns 49% of CNBC

CNBC.com and wires

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UPS
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Halftime Report

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