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After Hours Action: Alcoa

With the market trading sideways on Wednesday, all eyes were on Alcoa after the bell, as this Dow component kicked off earnings season.

Investors eagerly looked for signs that the economic recovery was underway - and it seems Alcoa delivered.

In extended trade shares moved higher after the aluminum giant posted a surprise profit, after three consecutive quarterly losses, largely driven by an increase in aluminum prices as well as cost savings.

The price increase is significant because it signals improved demand, which had taken a sharp turn lower.

What must you know to trade this stock?

The Fast Money traders are focused on a few metrics they say matter most -- cash on hand and the debt-to-capital ratio.

BEHIND THE NUMBERS: ALCOA 3Q
CASH ON HAND: $1.1 BLN
DEBT-TO-CAPITAL: 38.3%

And the traders liked what they see. Cash on hand is up from $762 million 1 year ago...and that debt to capital ratio is down from 39.7% a quarter ago.

It shows improvement on the balance sheet, muses Joe Terranova. It seems to me China’s stimulus is what’s driving these numbers. But I wouldn’t establish a position unless there’s a reversal in aluminum prices.

Deutsche upgraded the stock back on September 30th, reminds Pete Najarian. They were right and that’s the analyst that I’ll be watching to trade the space. And I’m watching Century Aluminum as a related play.

At 15 times earnings Alcoa valuations are rich, counters Guy Adami. I just can’t feel bullish. If you’re looking for a metal play I’d play FCX.

I think Alcoa is going higher, counters Tim Seymour. Price increases should benefit this company for some time to come.

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ALERT: GOLD HITS ANOTHER RECORD HIGH

The price of gold surged to a new high on Wednesday, as investors poured into the precious metal as an alternative investment.

As we first told you yesterday, gold has benefited from a confluence of factors including the dollar's decline, technical buying momentum and worries about potential inflation as central banks struggle to emerge from unprecedented fiscal stimulus measures.

What’s the play?

I’m watching 1050 as the next key level in gold, says Joe Terranova. I think Alcoa earnings sends gold higher and we take out that technical level.

1038 is probably the floor, adds Tim Seymour. I also think gold is moving higher.

Gold doesn’t have a use in the same way that most other metals have, reminds Pete Najarian. For a metals play I’d look at FCX , one of the largest miners of copper.

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STOCKS STALL BEFORE EARNINGS SEASON

Stocks traded sideways on Wednesday as the market took on a cautious tone ahead of Alcoa results.

Expectations for earnings season have been in the spotlight after second quarter's strong showing, where more than 70 percent of companies beat Wall Street's consensus estimates.

"The market has given earnings the benefit of the doubt and moved up in anticipation of continued improvement," explains Keith Hembre, chief economist at First American Funds.

Now investors are waiting to see if valuations are justified.

What’s the trade?

The tape wants to go higher and I wouldn’t fight it, says Guy Adami. But I do think a day of reckoning is coming.

Money on the sidelines probably has to go to work, adds Pete Najarian. I think you’ll see momentum grow as that happens. I’m watching IBM and Intel , he adds. Those earnings reports kicked off the bull run last earnings season and they could do it again.

I think there’s room to run in the S&P through the end of the week, adds Tim Seymour.

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TOPPING THE TAPE: FINANCIALS THE MARKET LEADER

Financials closed with gains on Wednesday after Wells Fargo Securities raised its rating on Bank of America to "outperform" from "market perform," saying this stock is currently trading at the deepest discount to its peers.

However Wells cut its third-quarter earnings view on BofA saying it expects the largest U.S. bank to take about $2.4 billion charges.

Wells also increased price targets for Goldman to a range of $209 to $220 from $169 to $179.

What’s the bank trade?

Greenhill keeps bouncing against resistance, says Guy Adami. But I think it could make it to triple digits.

For me quality banks are easy trades, adds Joe Terranova. I’d get long with the previous days close as my stop out.

I’m watching Lazard , adds Pete Najarian. That’s a name that just keeps on cranking.

Consumer credit pulled back for the 7th straight month and that concerns me, counters Tim Seymour. That’s a problem for JPMorgan and Bank of America. It’s a bad trend.

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TOPPING THE TAPE: COSTCO LEADS RETAILERS

Retail stocks moved higher on Wednesday after both Costco and Family Dollar reported stronger than expected profits, as frugal shoppers scoured their stores for low prices.

What’s the trade?

In the retail space, I think the plays are Visa and Mastercard , says Pete Najarian.

I’m watching Williams-Sonoma, adds Guy Adami. I think it’s a short idea.

I like Best Buy, adds Tim Seymour. There’s been strength in notebook sales and other electronic items and they should benefit.

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MARKET BUZZKILL: HOMEBUILDERS BEATEN UP

Shares of homebuilders dropped Wednesday after an analyst wrote that investors betting on an extension of the $8,000 federal tax credit may be disappointed

Deutsche Bank analyst Nishu Sood said Wednesday in a research note that a survey the bank did of investors found that they overwhelmingly - 86 percent - expected the credit to be renewed. If that doesn't happen, he said, homebuilder shares may tumble.

What’s the trade?

I think the government may have to continue this subsidy because housing is so important to the economy, muses Joe Terranova.

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STORY OF THE DAY: IS GOLDMAN TRYING TO BECOME AN I-BANK AGAIN?

In our interview with Rick Santelli about the potential of stagflation, the CNBC reporter revealed that he's heard Goldman may be looking to become an invesment bank again.

What's the speculation on the floor? Watch the video now and find out!





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Trader disclosure: On October 7, 2009, 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), (C), (GS), (INTC), (MSFT), (NUE), BTU); Terranova Owns (NOV), (MOS), (JPM); Terranova Is Short (CCL); Terranova Is Short (WYNN); Terranova Is Short (GRMN); Terranova Owns Dec. Gold Futures; Terranova Owns March Sugar Futures; Terranova Owns Crude Futures; Seymour Owns (ACI), (AA), (STD), (BX), (BAC), (SBUX); Seymour Owns (RTP); Najarian Owns (C) Calls; Najarian Owns (BRCD) Call Spread; Najarian Owns (DFS) Calls; Najarian Owns (DELL) Call Spread; Najarian Owns (GE) Calls; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (HMY) Calls Spread; Najarian Owns (LAZ) & Short (LAZ) Calls & Long (LAZ) Put Spread; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (MYL) Calls; Najarian Owns (PLCM) Call Spread; Najarian Owns (TEVA); Najarian Owns (ORCL) & Short (ORCL) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (WFC) Puts; Najarian Owns (YHOO) Call Spread; Najarian Owns (DFS) Calls

For Deborah Weinswig:
Citigroup Global Markets Inc. acted as a joint bookrunner on the announced debt offering of (WMT)
Citi Owns (TGT)
Citi Owns (SKS)
Citi Co-Managed An Offering Of Securities of (WMT)
Citi Has Received Compensation From (M)
Citi Has Received Compensation From (TGT)
Citi Has Received Compensation From (WMT)
Citi Has Received Compensation From SKS)
Citi Expects To Receive Compesation From (WMT)
Citi Has Received Compensation From (COST)
Citi Has Received Compesation from (HD)


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