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Market Falls On Bleak Comments

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MARKET GIVES BACK GAINS

The Dow fell on Thursday on dimming prospects for an automaker bailout, while bleak comments about the banking sector from JPMorgan's CEO prompted investors to sell financial shares.

Most of the drop came late in the afternoon, but the day was governed by a steady stream of dismal corporate and economic news, including word that initial claims for unemployment benefits hit a 26-year high. The pullback was another setback for those Wall Street pundits who argue that stocks hit their bottom late last month.

Strategy Session with the Fast Money Traders

The story starts with the jobless number, says Pete Najarian. The news was awful. But investors didn't think it’s so dire. The VIX , Wall Street's favorite measure of fear, finished flat.

Jamie Dimon scared investors and they took profits, adds Guy Adami.

The SRS was up huge, adds Karen Finerman. The real estate sector had a big overshoot to the upside recently, and the downside was severe.

That’s what a bear market does, adds Jeff Macke. It’s hard to trade this market.

And don’t chase the coal stocks , adds Najarian. They won’t continue on a straight line higher, they will come back.

DIMON DROPS FINANCIALS

JPMorgan Chase led the financials lower after CEO Jamie Dimon told CNBC that the bank has had a "terrible'' November and December, blaming the "normal culprits"—mortgages, credit, and high-yield bonds and loans.

He also said JP Morgan has used its portion of government bailout money to lend aggressively on a variety of fronts.

Though Dimon said his institution is in solid shape, he said the economy was facing many challenges ahead, primarily from unemployment. He said aggressive attempts to lower mortgage rates will be necessary to pull real estate from its slump.

The credit story has not improved over the last week, muses Karen Finerman. But the stocks have. I’m short Capital One.

I wouldn’t short the retailers as a credit card play, adds Jeff Macke. You’d be late to the game.

Celebrated short seller Bill Fleckenstein is shutting down his short trades, adds Guy Adami. That’s a “tell.”

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AFTER HOURS ACTION: BANK OF AMERICA

Bank of America said on Thursday it plans to cut up to 35,000 jobs over the next three years. The reductions will affect all lines of business and staff units. They also say the reductions will eliminate redundancies due to the merger with Merrill Lynch.

That can’t be a good thing for real estate in the areas where the job cuts are most severe, says Karen Finerman.

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AUTO RESCUE UNDER FIRE

Prospects for passage of a $14 billion auto industry rescue package dimmed Thursday amid strong Republican opposition, despite urgent appeals by both President-elect Barack Obama and the Bush White House.

Senate Republican Leader Mitch McConnell came out against the legislation—the product of a hard-fought behind-the-scenes compromise between the majority Democrats and the White House.

Although a vote was expected to go up on Thursday night, neither Dems nor GOP leaders in Congress were optimistic that something would pass, explains John Harwood.

It’s difficult to get a deal but it probably isn’t over, he adds.

Right now GM is a trading vehicle, says Guy Adami. Deal or no deal I would not hold this stock for the long term.

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WILL FALLING DOLLAR HELP STOCKS?

The dollar fell on Thursday, as investors overcame their fears about the global credit crisis amid improving credit conditions and sought currencies with higher yields.

The dollar hit seven-week lows versus the euro and yen. It was dragged lower by data suggesting a further rise in unemployment, which should add pressure on the Federal Reserve to cut interest rates again, further diminishing the dollar's appeal.

Moves in the dollar are directly related to moves in commodities, says Pete Najarian. The XLE and OIH have moved 20% in the past few weeks and that’s driving the dollar lower.

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TOPPING THE TAPE: COMMODITIES

Oil surged more than 10 percent on Thursday, settling at nearly $48 a barrel after the OPEC president called for more "severe" production cuts.

News that Russia's President Dmitry Medvedev said the country was ready to work with OPEC on possible oil output cuts lent additional support to the market.

Meanwhile, gold bounced from lows to hit a 1-week high on Thursday while copper futures also held onto gains.

How should you trade?

Pressure in commodities happened because hedge funds needed to liquidate their positions, explains Jon Najarian. I think we’re going to see moves to the upside in 2009.

Keep an eye on gold stocks such as Gold Fields, Barrick Gold Corp and Yamana, he counsels. Options action suggests they could go higher in the first few months of next year. If the hedge funds weren’t liquidating I think gold would be around $900 an ounce.

And keep an eye on infrastructure stocks, counsels Jon’s brother Pete. Nucor took off like a rocket and I like the direction.




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Trader disclosure: On Dec. 11th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Macke Owns (MSFT), (WMT), (MCD); Pete Najarian Owns (NUE), (FCX); Pete Najarian Owns (DRYS) And Is Short (DRYS) Calls; Pete Najarian Owns (SBUX) Calls; Pete Najarian Owns (UYG) Calls; Pete Najarian Owns (XHB) Calls; Finerman Owns (SRS), (MSFT); Finerman's Firm Owns (OIH) Puts; Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (BBT), (VNO), (SPG), (FCE.A), (COF), (USO)

Jon Najarian Has Long Call Positions In (GFI), (AUY)

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