Halftime Report: Is Recovery For Real

Around lunchtime Friday both the Dow and S&P 500 had recorded solid gains after stress test results and better than expected employment figures buoyed investor optimism.

After the bell, Thursday, government regulators revealed banks still need to raise $74.6 billion to build a capital cushion. Although that’s an enormous figure investors appear bullish; preferring that uncertainty has been removed from the equation. Banks as a sector traded higher; even Citigroup and Bank of America, two firms with the largest capital needs, were also in the green

Meanwhile, new figures showed that employers cut 539,000 job in April. Although it’s a sizable number, it’s the smallest reduction since October, and investors are interpreting the number as a “good” report because it hints at improvement in the labor market.

How should you be trading?

Instant Insights from the Fast Money Crew

From a technical perspective, we’ve seen the S&P settle at the upper end of the weekly range every week over the past 8 weeks, explains Fast Money trader Joe Terranova. Technically that gives you conviction to stay in the game.

Fundamentally the question remains what’s the catalyst that can move the market higher, he adds. From a bullish standpoint we’re out of bullets.

Financials will probably continue to go up, muses Dan Fitzpatrick of StockMarketMentor.com, just because the fear dynamic has changed dramatically. It used to be ‘afraid to be in’ – and now it’s ‘afraid to be out’. But personally, I think there’s more trouble ahead with banks, a lot more.

We’re seeing credit markets improve and banks stocks improve, adds Brian Stutland of Stutland Equites. That gives us a clearer picture of what’s ahead. As a result the Vix is trending lower. But I think stocks may be overextended. The S&P may trend to it’s 200-day moving average, but then it could lose steam.

I agree that investors have to think about what’s the catalyst going forward, muses Zach Karabell of RiverTwice Research. I think it’s very important to look at fundamentals. I’d accumulate positions in companies with strong fundamentals.

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TOPPING THE TAPE: OIL BREAKOUT CONTINUES

Oil bulls are charging forward with the price of crude rapidly approaching $60 a barrel.

"We believe that crude prices are being driven higher by a combination of rising expectations for a faster economic recovery, increased fund flows into commodities and higher utilization at U.S. refineries," says Adam Sieminski at Deutsche Bank.

What’s the trade?

I think we’re seeing some irrational exuberance in oil, muses Joe Terranova. I think there’s a lot of spec buying.

Turning attention to coal and nat gas, both commodities just broke out, explains Dan Fitzpatrick. That’s good for Apache and Anadarko on the nat gas side and on the coal side look at Arch Coal, Massey and Patriot . I’m bullish on both sectors.

I’d play the global industrial names, explains Zach Karabell. Look at United Technologies.

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IS THE RECOVERY FOR REAL?

The latest jobs report gave a mixed picture of employment in the US, leaving investors without any clear sign that the economy is improving.

The pace of layoffs slowed in April when employers cut 539,000 jobs, the fewest in six months. But the unemployment rate climbed to 8.9 percent, the highest since late 1983, as many businesses remain wary of hiring given all the economic uncertainties.

Is the report bullish or bearish?

I thought it was quite a good report, explains strategic investor Dennis Gartman. The recession could be within a month a making its bottom.

As a result I'm long-term bullish. I wouldn’t chase the rally here but on any 4% - 5% correction I’m a buyer of stocks.

For more plays including Fast Money’s Trade To Go please watch the video above.

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Trader disclosure: On May 8th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (AAPL), (TGT), (WFC), (GS), (PCLN), (GE), (SDS), (AGU); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Finerman's Firm Owns (MSFT) And Is Long (MSFT) Put Spreads; Finerman's Firm Owns (UNH); Finerman's Firm And Finerman Own (WFC) Preferred Shares, Finerman's Firm Is Short (WFC); Finerman's Firm Is Short (IJR), (SPY), (MDY), (IWM), (USO), (BBT); Terranova Owns (XBI), (GENZ), (ABT), (BP); Terranova Is Short (XOM) Call Spread; Terranova Owns (MS) And Is Short (MS) Calls; Terranova Owns (DIS) Call Spread; Terranova Is Short (JPM), (BRCM), (POT), (X), (WYNN), (JOYG), (HES); Terranova Is Short June Crude Oil Futures; Terranova Is Short June Natural Gas Futures

Terranova Works For (VRTS): Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.: Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO

Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV); Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (CAL), (DLR), (EPR), (EXR), (IGE), (MEE), (DBC), (DBV), (DBA), (SKT), (UA), (CLB), (WBMD); Virtus Investment Partners Owns More Than 1% Of St Mary Land & Exploration Co; Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights

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