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Higher Rate Fears Killed Market Rally?

Stocks closed modestly higher on Monday as airline shares dragged down the S&P amid new concerns of terrorism.

However losses were limited by retailers , after new data suggested holiday sales were better than expected.

Aside from retail and airlines, the Fast Money traders were also closely watching the action in Treasurys after tepid demand for 2-year notes fueled speculation that higher rates were looming.

What must you know to trade this market?

Strategy Session with the Fast Money traders

Many traders are telling me that the trade for 2010 is higher interest rates and not earnings, says CNBC’s Bob Pisani, who is filling in for host Melissa Lee.

I don’t think interest rates are heading higher, counters Steve Cortes. I thought the auction on Monday went relatively well, however the harder ones are still to come.

(The Treasury intends to auction $42 billion of five-year notes on Tuesday and $32 billion of seven-year notes on Wednesday.)

I think the important trade for 2010 is mortgage rates, muses Joe Terranova. And I think if they make a sharp move higher you may see a flurry of home sales.

I think the trade is mutual fund Monday, exclaims Pete Najarian. (That’s a familiar term that Pete has coined for money flowing into the market on Monday’s, which he takes as mutual fund buying.) It’s moving technology, energy the coal names and more.

Pete's Mutual Fund Monday

* Monday Sept 14th +6.3

* Monday Sept 21st -.60

* Monday Sept 28th +17.90

* Monday Oct 5th +14.70

* Monday Oct 12th +3.40

* Monday Oct 19th +9.10

* Monday Oct 26th -10.50

* Monday Nov 2nd +6.10

* Monday Nov 9th + 25.50

* Monday Nov 16th +14.90

* Monday Nov 23rd +13.70

* Monday Dec 7th -4.40

* Monday Dec 14th +6.00

* Monday Dec 21st +10.50

I’m watching January 8th very carefully, adds Terranova, because that’s when we get the next employment number.

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TOPPING THE TAPE: RUN, RUN RETAIL

As mentioned above retail stocks were among the day’s best performers after new data showed holiday sales were stronger than expected.

Among the hottest sectors this shopping season:
- Consumer electronics, up 5.9 percent, helped by flat-panel TVs, smart phones, cameras and video games.
- Footwear, up 5 percent.
- Jewelry, up 5.6 percent. Last year, jewelry sales fell 30 percent.

Online sales were a particular hot spot, fueled by a big increase the weekend before Christmas. They rose 15.5 percent on the season, though they make up less than 10 percent of all retail sales.

What’s the retail trade?

I think Amazon is a buy even up at these levels, says Steve Grasso.

I’m expecting to see consumers go back into retrenchment in early 2010, says Joe Terranova. I think Walmart and CVS win.

I’m bullish Kroger and a seller of the high fliers, adds Steve Cortes.

The iSlate is generating a great deal of buzz, adds Pete Najarian. To me the retail trade is Apple.

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OIL BREAKS OUT

Oil rose on Monday to touch a five-week high over $79 a barrel as expectations of colder weather in the United States and signs of economic recovery boosted the outlook for fuel demand.

What’s the trade?

I’m very skeptical of crude, says Steve Cortes. If the spike continues I’d get short.

As far as I’m concerned the energy trade remains coal, reminds Pete Najarian. Look at Bucyrus and Walter Energy.

As far as I'm concerned the commodity trade is all about the 4 C's; crude, coal, copper and corn, muses Joe Terranova. I’d watch all of them.




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Trader disclosure: On Dec. 28th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders

For Steve Grasso:
Grasso owns (AAPL)
Grasso Owns (BAC)
Grasso Owns (C)
Grasso Owns (CSCO)
Grasso Owns (PFE)
Grasso Owns (WMT)
Grasso Owns (V)
Stuart Frankel is Short (QQQQ)

For Steve Cortes:
Cortes Owns (GD)
Cortes Is Short (TOL)
Cortes Is Short (PHM)
Cortes Owns (SPX)
Cortes Owns US Dollar
Cortes Is Short Gold

For Pete Najarian:
Najarian Owns (LLTC) calls
Najarian Owns (MS) & Short (MS) Calls
Najarian Owns (PFE)
Najarian Owns (STEC) Call Spread

For Joe Terranova:
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.

For Jeff Harte:
Sandler O'Neill Has Received Compensation from (C)
(C) Is A Client Of Sandler O'Neill

For Steve Levenson
Stifel, Nicolaus & Company, Inc. makes a market in the securities of (ALOG)
Stifel, Nicolaus & Company, Inc. expects to receive or intends to seek
compensation from (ALOG)
Stifel, Nicolaus & Company, Inc. makes a market in the securities of (ASEI)
Stifel, Nicolaus & Company, Inc. expects to receive or intends to seek
compensation from (ASEI)

For Tom Lydon
Lydon's Clients Own Shares of (TIP)
Lydon's Clients Owns Shares of (VWO)
Lydon's Clients Own Shares of (EEM)
Lydon's Clients Owns Shares of (GLD)

For Heath Terry
FBRCM acts as a market maker in (ATVI)
FBRCM acts as a market maker in (ERTS)
FBRCM acts as a market maker in (THQI)
FBRCM acts as a market maker in (TTWO)



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