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Fast Money

Technicals Say Stock Market Rally Only Temporary


On Tuesday, optimists were starting to think that 2012 was going to be their year.

The Dow surged by triple digits and the S&P closed at its highest since late October.

The positive sentiment largely stemmed from the latest ISM report, which showed construction spending and factory activity in the US was stronger than expected. Also overseas data showed Germany’s unemployment declined more than forecast.

Seems like every reason to hit the buy button. But the Fast Money pros say only do that if you’re a nimble short term trader. The only see gains, in the near term.

As you may remember, recently Guy Adami said the market could whoosh higher if it was able to close above 1265 – the 200-day moving average - and on Tuesday the S&P did just that.

“That sets us up a drive toward 1350,” he says. “I think we have almost another 80 handles in the S&P.”

However, if you’re a long-term investor, - that is, someone looking to buy and hold for a year or longer - our pros say don't buy, yet. You'll have the opportunity to get in, lower.

“At 1350 I think we’re looking at a double top,” Adami explains, a bearish chart pattern.

“Nothing has fundamentally changed,” notes trader Karen Finerman. The overhang of Europe is still there.”

Charting the Market: Is the Rally for Real?

The usually bullish Joe Terranova agrees. “I wouldn’t trust this rally (long-term). The market has been very technically driven.”

And the technical don’t set up well, according to top technical analyst Mary Ann Bartels of BankofAmerica Merrill Lynch. She tells us there’s every reason to be cautious. “It’s a rally but not a real break away rally,” she says.

“Looking at 10-year yields – the channel is still coming down – I think we can see yields as low as 1.4%,” Bartels explains.

That suggests risk off.

“And we have a break out in the US dollar – the DXY looks like it wants to go to 85 even 87. “

Lately the stronger dollar has been a drag on the S&P making the price of commodities nominated in dollars more expensive for buyers using other currencies. In turn that’s dragged down natural resource related names.

She thinks the path of least resistance is lower. How low? “We probably have to retest the October lows of 1100 even 1074,” she says.

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Trader disclosure: On Jan. 3, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Adami is long (C), (GS), (INTC), (BTU), (AGU), (MSFT), (NUE); Seymour is long (INTC), (BAC); Terranova is long (VRTS), (IBM), (LQD), (MUB), (EMC), (CSCO), (AXP), (SBUX), (CSX), (APC), (OXY), (XOM), (TRLG), (SWN), (V), (SU); Finerman is long (AAPL), (BAC), (JPM), (GOOG); Weiss is long (CHK), (KO), (RIMM), (QCOM), (GM), (EUO), (HPQ), (VZ), (BRCM), (AMLP), (NS); Weiss is short (FXA)

Karen Finerman, Metropolitan Capital
Fund is long (AAPL)
Fund is long (JPM)
Fund is long (IBM)
Fund is long (CF)
Fund is long S&P 500 puts
Fund is long (IWM) Puts
Fund is short (SPY)

Mike Khouw, Cantor Fitzgerald
No disclosures

Mary Ann Bartels, Bank of America Merrill Lynch
No disclosures

George Goncalves, Nomura Securities
11 Liquidity provider
Nomura International plc and/or its affiliates (collectively "Nomura") is a primary dealer and/or liquidity provider in European, United States and Japanese government bonds. As such, Nomura will generally always hold positions in these bonds, which from time to time, may be considered a significant financial interest.

Jim Iuorio, TJM Institutional Services
Has positions in (VXX) and (TBT) ETF

Tavis McCourt, Morgan Keegan
Firm makes market in AAPL, RIMM shares

Pavel Molchanov, Raymond James
Firm expects to receive or seek investment banking services from  BP in the next 12 months and wires