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The Market Melt-Up Doesn't Make Sense, Does It?

Despite a sluggish economy and uncertainty in Europe, the Dow is flirting with a 4 ½ year high.

And that Fast Money pros think stocks go even higher.

“Absolutely, I expect the rally to last a while longer,” says trader Guy Adami, managing director of stockMONSTER.com.

How can that be?

The number of Americans filing new claims for jobless benefits is rising and manufacturers suffered an unexpected drop in orders in June. The US economy is woeful. Even Ben Bernanke has said “many individuals and households continue to struggle with difficult economic and financial conditions.”

Adami, as well as the other pros remind us that the Street is hyper-focussed on Europe and a quiet development bodes extremely well for the bulls. German Chancellor Angela Merkel’s government backed the European Central Bank’s bond-buying plan.

Although Merkel didn't make a big announcement with fanfare, a spokesperson did say Germany was "not worried" by ECB president Mario Draghi's comments last week about buying bonds.

Markets are taking the commentary as a sign that Germany is, in fact, prepared to support intervention by the ECB in the bond markets, explain the pros. "Now we need to see them do it, but they're certainly a big step closer."

And there are other reasons to be bullish. Boston Federal Reserve president Eric Rosengren pressed his call for more action from the Fed on CNBC. In addition, Beijing is expected to implement economic stimulus with China’s CPI expected to drop below 2%.

“This is what the bulls need,” explains trader Brian Kelly, founder of Shelter Harbor Capital. “This is a period in which the only option is to be bullish.”

“Even I’ve added to my exposure in stocks,” adds the usually skeptical trader Stephen Weiss, managing partner at Short Hills Capital. "It's a perfect bullish storm."

However that's not to say gains in the market are limitless - they're not.

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“I think the bulls can take the S&P to 1422 – the spring high,” adds Adami. “That's about 20 more S&P handles. But at 1422 the bulls will have to prove themselves and I’m not sure they can.”

“I agree that 1422 level is key,” adds Mike Murphy, founder and managing partner at Rosecliff Capital. However he thinks at that level momentum may remain on the upside. “Jefferies wrote about strong S&P calling buying with August expirations. That suggests to me that a small rally could explode into something bigger.”

Adami just doesn't see it - even with all the call buying. "Enjoy the rest of the ride – I don’t think it will be all that long in duration."


Posted by CNBC's Lee Brodie

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Trader disclosure: On August 7, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Mike Murphy is long DNKN; Mike Murphy is long SBUX; Steve Weiss is long X; Steve Weiss is long WLT; Steve Weiss is long QCOM; Steve Weiss is long JPM; Steve Weiss is long CAT; Steve Weiss is long WLP; Steve Weiss is short AAPL PUTS; Steve Weiss is short JCP; Brian Kelly is long CAT; Brian Kelly is long WY; Brian Kelly is long MON; Brian Kelly is long EUROSTOXX 50; Brian Kelly is long WFC; Brian Kelly is long XHB; Brian Kelly is long USG

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