The S&P broke a 6 day winning streak on Thursday largely due to dollar strength. The greenback held firm against the euro on Tuesday, dragging down energy , materials and other related stocks.
However, consumer confidence helped to minimize losses after the latest numbers showed confidence levels hit a 3-month high and in that same survey fewer people said, "jobs are hard to get," a notable improvement.
What should you be watching, now?
Strategy session with the Fast Money traders
I’m watching new data which shows investors flooded US equity funds with $11.1 billion, the highest amount in 79 weeks, explains Bob Pisani. Are retail investors getting in at the top?
I don’t think so, says Steve Grasso. This morning the FTSE traded above pre-Lehman levels and I think investors take that as a leading indicator that the S&P is going to rally.
I also don’t think they’re buying at the top, echoes Pete Najarian.
I’m watching Tuesday’s Treasury auction of $42 billion in 5-year notes, adds Steve Cortes. It had a decent reception which says to me there’s still an appetite for Treasurys.
Technology and energy are what I’m watching, reveals Joe Terranova. They performed well in 2009 and I think just could do well next year, too. I also think commodities will do well as the emerging world blossoms.
SMALL CAPS CAN’T KEEP UP
A 3 month chart of the IWM shows that small caps stocks have been lagging the broader market.
Does the action signal further weakness to come?
Historically smaller companies matter greatly, explains Steve Cortes. In October the S&P continued to rally but the smaller caps did not. One explanation may be that it’s too difficult for smaller companies to get credit.
There may be other explanations too, but typically this kind of technical pattern is a problem, Cortes concludes.
DOLLAR HITS COMMODITY TRADE
As we mentioned above, the dollar held firm against a basket of currencies Tuesday as investors bet on a US recovery.
What’s the currency trade?
I bought the dollar against Mexico’s peso and the Aussie dollar, reveals Steve Cortes. I think the US is outperforming. I believe the US economy will do better than most other economies on a relative basis.
Of all the commodities, perhaps none is more closely watched than oil , which briefly rose above $79 a barrel to a fresh five-week high on Tuesday, supported by expectations of colder U.S. weather and concerns over political developments in Iran.
However, $80 remained a level of technical resistance and by afternoon oil had pared gains.
With inventory reports due on Wednesday, can oil break above resistance?
Historically oil does well from Christmas Eve into early January, explains Joe Terranova. If we see a decline in oil inventories of 1.5 million barrels or and a draw down in distillates, I think we see a spike in the price of oil.
% change in oil from on biz day before Christmas Eve to Jan. 4th, 5th, or 6th
And elsewhere in commodities, I think the sleeper commodity next year will be corn, speculates Joe Terranova.
I’m bullish coal, says Pete Najarian.
WHALE WATCHING: BIGGS BULLISH ON DOLLAR AND STOCKS
Widely followed investor, billionaire Barton Biggs appears to be bullish on both the dollar and stocks in 2010.
In a Bloomberg interview he says, “I don’t see any reason why we can’t have a further rally in the dollar and a further rally in stocks. And my guess is that the next move in both could be on the order of 10 percent.”
Can stocks and the dollar rally at the same time?
Yes, exclaims Pete Najarian. As the middle class emerges around the world the demand for commodities should skyrocket. And that will allow commodities to go higher despite gains in the dollar.
MARKET BUZZKILL: HOMEBUILDERS BACK OFF
Housing added to the headwinds facing investors on Wednesday after new data showed home prices were flat in October after five months of increases.
The results were surprising and fell short of expectations, which were for a rise of 0.2 percent. On the news speculation began to swirl that a growing number of foreclosures could depress prices all over again.
A sustained upturn in home prices is seen vital to the economic recovery.
What’s the trade?
I thought the number was mildly disappointing but not a big deal, muses Steve Cortes. In this space I think rather than home prices, the bigger issue is inventory. And I expect it to take months if not years to work off the excess inventory. As a result I'm a seller of homebuilders against the S&P.
However, I think home improvement is doing great, adds Pete Najarian. Home Depot should continue to do well, perhaps at the expense of the homebuilders.
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Trader disclosure: On Dec. 29th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders
For Pete Najarian:
Najarian Owns (MMR) Calls
Najarian Owns (BP) Call Spread
Najarian Owns (STX) Calls
Najarian Owns (UUP) Call Spread
For Steve Cortes:
Cortes Owns S&P 500
Cortes Owns U.S. Dollar
Cortes Is Short Godl
Cortes Owns (GD)
Cortes Owns (RTN)
Cortes Is Short (TOL)
Cortes Is Short (PHM)
Cortes Is Short Australian Dollar Futures
Cortes Is Short Mexican Peso Futures
For Steve Grasso:
Grasso Owns (APK)
Grasso Owns (AAPL)
Grasso Owns (ASTM)
Grasso Owns (BAC)
Grasso Owns (BGP)
Grasso Owns (C)
Grasso Owns (COST)
Grasso Owns (CSCO)
Grasso Owns (FAZ)
Grasso Owns (PFE)
Grasso Owns (PRST)
Grasso Owns (WMT)
Grasso Owns (V)
Stuart Frankel & Co. And Its Partners Own (AIZ)
Stuart Frankel & Co. And Its Partners Own (CUBA)
Stuart Frankel & Co. And Its Partners Own (GERN)
Stuart Frankel & Co. And Its Partners Own (GLG)
Stuart Frankel & Co. And Its Partners Own (HSPO)
Stuart Frankel & Co. And Its Partners Own (NWS.A)
Stuart Frankel & Co. And Its Partners Own (NXST)
Stuart Frankel & Co. And Its Partners Own (NYX)
Stuart Frankel & Co. And Its Partners Own (PDE)
Stuart Frankel & Co. And Its Partners Own (PRST)
Stuart Frankel & Co. And Its Partners Own (RDC)
Stuart Frankel & Co. And Its Partners Own (ROK)
Stuart Frankel & Co. And Its Partners Own (TLM)
Stuart Frankel & Co. And Its Partners Own (XRX)
Stuart Frankel & Co. And Its Partners Own (SDS)
Stuart Frankel & Co. And Its Partners Are Short (QQQQ)
Stuart Frankel & Co. And Its Partners Are ShorT (CL)
For Joe Terranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (CLB)
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 (XLY)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (UA)
For Dennis Gartman
Funds Managed By Dennis Gartman Own (IP)
Funds Managed By Dennis Gartman Own (DE)
Funds Managed By Dennis Gartman Own (WY)
For Luciano Siracusano
Siracusano Is Chief Investment Strategist Of WisdomTree And Is An Investor In WisdomTree ETFs
Siracusano Owns (EES)
For Jim Ross
Ross Is Senior Managing Director Of State Street Global Advisors And Is
President Of State Street Global Advisors Funds Management, Inc.
Ross Owns (JNK)
Ross Owns (GLD)
For Edward Zabitsky
Zabitsky Is Short (HPQ)
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