Stocks closed higher on Wednesday after Ben Bernanke reassured lawmakers interest rates will remain low.
The Fed chief’s commentary drove financials higher broadly; banks such as BofA and JPMorgan stand to benefit if borrowing rates remain at historic lows.
The promise of more cheap money almost seemed like a foregone conclusion after a bearish report on housing showed the pace of new home sales slowed to a 47-year-low.
A separate report from the Mortgage Bankers Association showed mortgage applications fell for a third straight week, with demand for home purchase loans sinking to the lowest since 1997.
If rates stay low, how should you play banks and the housing stocks?
THE HOUSING TRADE
If you want to play housing I’d look at home improvement retailer Lowe’s , says Pete Najarian. I really don’t like the homebuilders.
I love Home Depot long term, reminds Guy Adami. But if you’re trading it, I’d take profits right here.
As a second derivative trade, if you don’t believe in housing, I’d be a seller of Fortune Brands, muses Joe Terranova.
*If you're more interested in banking sector trades - here's the recap from Wednesday's Halftime Report.
THE BANK TRADE
As compared to European banks, pro investors think US banks look more conservatively run and the yield curve looks to be in their favor, explains Gary Kaminsky. The US banks have been acting better and I think they will continue to act better.
I like Citi and JPMorgan, adds Brian Kelly of Kanundrum,. These are good banks with good core businesses. I would not, however, put money into Goldman , he adds. They’re facing headwinds.
I like Deutsche Bank for valuation, adds Tim Seymour. With a P/E of 7.5 times next year they’re growing their top line EPS. And Deutsche doesn’t have the exposure to Greece that people think it does.
Elsewhere in the market, if you’re looking for a trade look at GameStop , says Guy Adami. I think it could be heading into the low teens.
TOYOTA FACES CONGRESS
For those traders that enjoy drama, they found it in Toyota after CEO Akio Toyoda apologized to Congress for safety lapses that led to deaths and widespread recalls.
Despite the apology Toyoda disputed claims by some safety experts that the cars' electronic throttles might be at fault.
Toyota has recalled 8.5 million vehicles, mostly to fix problems with floor mats trapping gas pedals or with pedals getting stuck.
In addition, Toyoda said the company is making changes so brake pedals can override a sudden acceleration and bring a runaway vehicle to a safe stop.
The company said Wednesday it will offer free at-home pickup of vehicles covered by the national safety recall, pay for customers' out-of-pocket transportation costs and provide drivers free rental cars during repairs. The deal -- costs to the company weren't specified.
What’s the trade?
As a value investor I stepped into this stock on Wednesday, reveals Karen Finerman. It seems like an absolute crescendo of bad news for this company. But it’s a short-term trade for me; not something I usually do.
I also like Toyota as a trade but as an investment I’m concerned, adds Pete Najarian. I can’t help but wonder, how widespread the problems are at Toyota - and how forgiving will consumers be?
In the short-term I agree that Toyota’s stock may have bottomed out, says Guy Adami. In fact, that may take the steam out of the Ford trade. I want to be clear that as an investment I like Ford. But for a trade I’d be careful of letter 'F'.
I’m still bullish on Ford, counters Joe Terranova.
I’m on the same side of the Toyota trade as Karen Finerman, reveals Brian Kelly. The stock bounced off $71. I think the stock could go to $80 but at that level, I’m out. And as a derivative trade, with Toyota’s woes potentially hitting Japan’s exports, I’d be long US dollars and short Japanese yen.
AFTER HOURS ACTION: EXPRESS SCRIPTS
Pharmacy benefit manager Express Scripts on Wednesday reported better-than-expected fourth-quarter profit and issued a 2010 earnings forecast that exceeded Wall Street estimates, and its shares rose 8 percent in extended trade.
What's the play?
I think the trade is long rival Medco , says Guy Adami. I think they're sandbagging and they raise their guidance just like Express Scripts.
Or look at CVS , says Karen Finerman.
CALL OF THE DAY: GOLDMAN ON COPPER
Commodities did not participate in Wednesday’s rally with Goldman Sachs telling its customers to close out their bets on copper . The bank is citing the tenuous economic recovery as the reason why.
However, Fast Money spoke with the chief of Freeport McMoRan earlier in the week and his out look was much more upbeat.
What’s the trade?
I'm short FCX, reveals Brian Kelly. I just don't like the copper space. I think it's an over-supplied space.
I agree with the Goldman call, says Joe Terranova. I think the reflation trade is over with one exception; oil . I think the trade is long USO with puts in the GLD against it.
Gold has not performed frankly, adds Guy Adami. And now it's at critical levels technically.
In the space I'm a buyer of Joy Global , adds Pete Najarian because it's lagged.
EAR TO THE WALL: SHORT SALES BAN
Wednesday’s rally, led by financials, may be a mirage according to OptionsMonster Jon Najarian.
He thinks the pop wasn’t generated by low interest rates but rather a lesser know development involving short-selling.
On Wednesday securities regulators adopted a new rule that restricts short selling in stocks that have fallen more than 10 percent on any given day.
What must you know? Watch the video for all the details.
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CNBC.com with wires