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Sidelined No Longer, Bulls Get Ready to Charge

On Friday the Dow traded above 13,000 for the first time since May. Though round numbers are typically dismissed as more of a psychological milestone, that may not be the case this time.

Right now the market is trading on psychology as much as anything else. Is the price action a sign that psychology is changing - that bulls are off to the races?

Trader Joe Terranova thinks it is.

Terranova, who is chief market strategist for Virtus, says price is truth and what he sees in the market is a series of higher lows – a bullish pattern.

And he adds, “On Tuesday almost everyone said Apple’s weak earnings reportwould break the back of the market – but it didn’t. “

“When a market stops going down despite a flood of bad economic news – and lackluster earnings reports, that says to me position for a rally. We’re going higher. Money managers are about to chase the market higher.”

Trader Steve Grasso,director of institutional sales trading at Stuart Frankel, isn’t quite as positive.

He believes the current rally was triggered by ECB president Mario Draghi who said earlier in the week that the ECB will do whatever it takes to save the euro.

“True, that put a floor under the market," he says. "You have to be intra-day positive.”

However, he points out the leadership remains very defensive. “The XLU is at a new 52-week high. And I’m seeing money going into Wal-Mart. It’s all defense.”

In other words, if sentiment was truly getting better, risk assets such as energy, materials or industrials would lead the market, not utilities.

Usually bullish, trader Pete Najarian,co-founder OptionMonster.com, sides with Grasso.

He also believes the rally is all about Draghi as well as a belief that the market may get hints of new monetary stimulus when the Federal Reserve meets next week.

However, he adds, it won’t take much to turn sentiment negative. “And today, I’m seeing big upside call selling,” says Najarian. That’s bearish. That suggests big money isn't looking for a lot more upside than what we've got right now.

What do you think? We want to know!

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Posted by CNBC's Lee Brodie

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Trader disclosure: On July 26, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova is long (VRTS); Terranova is long (MCD); Terranova is long (USB); Terranova is long (GS); Terranova is long (JPM); Terranova is long (YHOO); Terranova is long (SBUX); Terranova is long (WFM); Terranova is long (AAPL); Terranova is long (NXPI); Brown is long (TGT); Brown is long (XBI)

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Stifel Nicolaus maintains a business relationship with Amazon.com, Inc.. Stifel, Nicolaus & Company, Inc. makes a market in the securities of Amazon.com, Inc.. Stifel, Nicolaus & Company, Inc. expects to receive or intends to seek compensation for investment banking services from Amazon.com, Inc. in the next 3 months.

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