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Rally Continues Despite Bad Economic News

Rally Continues Despite Bad Economic News

Thursday's market activity was headlined by bad news, but the Dow and S&P moved upwards, despite a jump in jobless claims, a dip in retail sales and a new report showing a 7% increase in foreclosures.

All the news wasn't bad, however, with a successful 30-year treasury auction, positive Walmart earnings and Ford's announcement that the company will be increasing production.

Word On The Street

Curious as to why the markets finished up in the face of bad economic news? Tim Seymour explains simply: "It is because the world is out of a recession." He is citing reports that the economies of France and Germany have already pulled themselves out of their recessions. Seymour thinks people on the street are excited that the US consumer could be supplemented by foreign spenders.

Karen Finerman also points out the positive news out of the US Treasury auction today, in which demand for 30-year notes was very strong.

Pete Najarian also points out how "every time there is a sell-off, the buyers step in," noting the market's tendency to rebound after short-lived pullbacks since the rally began. He points out that this trend can also be seen in individual stocks as people look for opportunities, highlighting BB&T , which has seen heavy positive options action. "Speculation to the upside, protection to the downside," is how Najarian explains the general activity.

"The market may seem like it's trading illogically, but there is a logical explanation as to what's going on," explains Joe Terranova. He points out that the markets are at a technical resistance level and people are playing the market right now for the short side, "when the market pulls back, it doesn't have follow-through. The problem right now is that everyone is playing it on the short side, and until everyone stops doing that, the market is not going down," he said.

"For people who thought this can't keep going on, they've lost out," adds Tim Seymour.

Financials Outperforming

The sector making headlines this week has been financials , with the report that John Paulson was a big buyer in Bank of America last quarter, giving the market increased confidence in the bank. The news pushed the stock up over 7% on the day, and encouraged an uptick two other stocks Paulson bought in to: Capital One and Regions Financial . However, Melissa Lee points out that investors don't know the amount of hedging Paulson is doing and it could potentially turn out to be quite significant.

"The real interesting one here is Captial One, which is a true consumer finance play," says Joe Terranova. He points out that this pure investment into consumer finance gives a vote of confidence to this part of the market.

The fact that John Paulson saw the sub-prime losses coming and made big profits on the faltering banks early in the crisis, and now he is investing back into banks is "incredibly positive," says Tim Seymour. He urges caution, however, for related stocks, as these big banks are not all created equal.

Karen Finerman, who is is long Bank of America both personally and through her firm, is playing the stock by just sitting still. "Any reason you had to be short Bank of America, they keep coming up with reasons why that's not valid anymore," she explains. She looks at this as a long-term play, going out to around 2011 and wouldn't be surprised to see the stock in the high 20's or 30's at that time.

Retail Detail

With Walmart's earnings report beating the street and JCPenney reporting earnings tomorrow, what are the trades to make in the retail sector? Karen Finerman is encouraged by Walmart, despite the fall in same store sales, pointing out that the multiples are not crazy on the stock, noting that it is cheap at these levels. To make this point further, she compares Walmart stock to SPDR S&P Retail , which she thinks is relatively more overvalued.

Tim Seymour also points out that the company still has $13.7 billion left in their stock buyback program, which gives an underlying bid to the stock, in additon to a deflation in grocery prices, which buffers the somewhat disappointing same store sales numbers.

Topping The Tape: Materials

The top performer in the market today was Materials, after Credit Suisse lifted its aluminum and copper price forecasts. "This helps the stocks more than anything," says Tim Seymour, "Look at Freeport, look at Alcoa."

Pete Najarian is adamantly bullish on Freeport-McMoran, pointing out that the momentum has been building for the company as street estimates for the company are rising significantly. "It gives you a great idea about the direction Copper is going right now," he says.

With easy monetary policy, trading in these commodities is a "no brainer," adds Joe Terranova, who sees the commodity bubble reflating as the dollar weakens.  

Oil Nears $71

Oil's momentum continued for the second day, a move which pushed oil services companies and energy names higher. "It seemed to me that oil was leading the S&P today," says Joe Terranova, who saw the commodity precluding moves in the market throughout the day. "It's moving again," says Karen Finerman, "and it's early."

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Trader disclosure: On Aug. 13th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Najarian Owns (FCX), Owns (FCX) Puts, Is Short (FCX) Calls, Owns (MS) And Is Short (MS) Calls, Owns (MSFT), Is Short (MSFT) Calls, Owns (MSFT) Puts, Owns (WFC) Put Spread, Owns (YHOO) Call Spread, Is Long (AMGN) September, Is Short (AMGN) August; Finerman's Firm Is Short (IYR), (IJR), (MDY), (IWM), (SPY), Finerman's Firm And Finerman Own (BAC) Preferred Shares, Finerman Owns (BAC), Finerman's Firm Owns (MSFT), Finerman's Firm Is Short (USO), Finerman's Firm Owns (WFC) Preferred Shares And Is Short (WFC), Finerman Owns (WFC) Preferred Shares, Finerman's Firm Owns (WMT); Terranova Owns (KBH) Puts, Terranova Owns (MSFT), (AMZN), (CAT) Puts, (FCX) Puts, Terranova Is Short (AVB), Terranova Works For (VRTS)

Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO

Virtus Diversifier PHOLIO Owns (IGE)
Virtus Diversifier PHOLIO Owns (DBC)
Virtus Diversifier PHOLIO Owns (DBV)
Virtus Investment Partners Owns More Than 1% Of  (ABD)
Virtus Investment Partners Owns More Than 1% Of (CAL)
Virtus Investment Partners Owns More Than 1% Of  (DLR)
Virtus Investment Partners Owns More Than 1% Of  (EXR)
Virtus Investment Partners Owns More Than 1% Of  (IGE)
Virtus Investment Partners Owns More Than 1% Of  (DBC)
Virtus Investment Partners Owns More Than 1% Of  (DBV)
Virtus Investment Partners Owns More Than 1% Of  (SKT)
Virtus Investment Partners Owns More Than 1% Of  (TNB)
Virtus Investment Partners Owns More Than 1% Of  (UA)
Virtus Investment Partners Owns More Than 1% Of  (CLB)

STACEY GILBERT Susquehanna Capital Group Is A Market Maker In (PCLN)
Susquehanna Capital Group And/Or Affiliates Owns 1% Or More Of (PLCN)

DENNIS GARTMAN CIBC Gartman Index Owns (AAPL) with wires