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Bull Vs. Bear: Market At A Critical Crossroads

Despite strong housing data and other catalysts that should have made stocks rally in a big way, the bulls were barely able to push the S&P and Dow into positive territory on Wednesday.

But does that mean the market is looking to make a sharp correction or will it simply pause and wait?

”We're at a crossroads," said Rob Stein, managing partner at the Chicago-based Astor Asset Management.

"Economic data has improved slightly while the market has improved more than slightly. This means the data will need to catch up to the market, or the market may be ahead of itself and needs to correct.

The bears are, by their nature, cautious. They say a few tell-tale signs have emerged over the past few days that seem somewhat ominous. They include the following:

- Despite all the positive news from the housing market, the epicenter of the crisis, stocks barely advanced.
- Oil made an intra-day reversal on Tuesday, after touching the psychologically important $75 level.
- For the third consecutive day, the broad market bounced in the morning after favorable news, but then gains fizzled in the afternoon.

But the bulls won’t hear it. They say to turn negative now is to miss the bigger picture and miss the next leg higher. They argue:

- Markets don’t go straight up. Profit taking is healthy especially considering the recent gains.
- Growth in China, Asia and elsewhere has already begun to lift the world out of recession.
- Typical patterns mean nothing. This march higher should beatypical because events that triggered the massive move lower were anything but typical.

It sure seems like the bulls and the bears are on the brink of mixing it up. In fact in the last hour of trading on Wednesday the market kept waffling between positive and negative as they both attempted to wrest control of stocks.

Of course it's anyone's guess as to what comes next. And nobody's opinion matters more than yours! What do you think? We want to know!

And this wouldn't be Fast Money without a trade!

How can you profit from the animosity between the bulls and bears?

Keep an eye on the dash for trash, counsels Gary Kaminsky, Neuberger Berman Fmr Managing Director. Dash for trash is the popular term for the recent surge in lower quality banks stocks.

Over the past month lower quality names have outpaced best of breed financials such as Goldman. Take a look:

Dash For Trash: 1-Month Performance
Freddie Mac +251%
Fannie Mae +231% |
AIG +170%
Citigroup +71%
CIT +67%

With hedge funds chasing performance through the end of the year I think the bulls could push these stocks higher, says Kaminsky.

But the trade will probably turn and the bears will ultimately dominate because hedge funds are only participating in these stocks because they feel they have to. (In other words, when money managers don’t have to be in these stocks, they’ll probably get out.)

Now before you dive in, it's important to note that this trade isn't for everyone.

Be careful, warns Steve Cortes. This trade is all about playing money managers as they chase performance. It's a dangerous game and it can turn on a dime.



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Trader disclosure: On Aug. 26th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Terranova Owns (AMZN), (MSFT), (SU), (XOM), (WFT); Terranova Owns (CCL) Puts; Terranova Is Short (SHLD), (EES); Adami Owns (AGU), (C), (GS), (INTC), (BTU), (MSFT), (NUE); Cortes Owns (SPX), (GS); Cortes Is Short Nasdaq 100; Cortes Is Short (JPM); Najarian Owns (BAC); Najarian Owns (BUCY) & Short (BUCY) Calls; Najarian Owns (C) Calls; Najarian Owns (FCX), Is Short (FCX) Calls, Owns (FCX) Puts; Najarian Owns (HGSI) Call Spread; Najarian Owns (INTC) Calls; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MS) And Is Short (MS) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (PALM) Call Spread; Najarian Owns (TXT) Calls; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (YHOO) Call Spread; Najarian Owns (XHB) Call Spread