Traders Cashing Out As They "Sell Into The Rally"

It didn't take long for investors to cash out of the stock market's early gains today, and the question is how will the day progress.

Traders say it's a basic "sell the rally" reaction. We watched as the financials turned south, after seeing buying interest out of the gate this morning. Financials are now the worst performers on the day.

Freddie Macand Fannie Maeboth lost their some gains, dipping into negative territory temporarily and stocks like Wachovia, Lehmanand Merrill are under pressure. At the same time, the dollar erased some gains and oil is starting to perk higher.

Earlier this morning, Jeff Rubin of Birinyi sent out a note pointing out that the morning of the Bear Stearns rescue, futures were quoted down 28 points ahead of the open, but the market worked its way higher throughout the day. Today, futures pointed higher and the market already has since lost some steam.

Traders were encouraged by moves this weekend by the Treasury and Fed to shore up confidence in Fannie and Freddie. "It's going to help but it's not going to solve anything," said Tim Smalls, head of U.S. trading at Execution LLC said.

Traders were watching the auction of $3 billion in Freddie securities. "Results were strong. The government stepping up in front of the auction helped investor confidence," said CNBC's Rick Santelli, from the Chicago futures pits.

As for the stock market, "We're up in the morning. The market is really not able to hold gains. Sell into the rally," said one trader who also said huge short positions in Fannie and Freddie were adding to volatility.

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