Halftime: Key S&P Level That Could Break Bulls

If there’s one thing every investor can agree on it’s that this market is extremely jittery.

The Dow surged by triple digits after China reassured investors it doesn't plan to sell the European debt it holds.

The development generated an almost audible sigh of relief on Wall Street with investors pushing the S&P past 1090, a point of former resistance.

What should you be watching?

Instant Insights with the Fast Money traders

Right now, traders are focused on 1086 explains Steve Grasso. If that level can hold the next key technical level will be between 1100 and 1110. I can’t feel bullish unless we close above 1100.

The market found support at 1040, adds Guy Adami, and I agree that it wants to test 1110. But as we approach that level I’d layer into selling positions. Ultimately the next big leg is probably down. Or you can play it with a long position in the Vix because I expect to see a spike in volatility.

That’s a great point, adds Steve Grasso. I can see investors getting lured back into the market at 1100 only to have their face ripped off.

I’m long the Vix, adds Patty Edwards. I didn’t like the action in the market on Wednesday and expect more volatility lies ahead.

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COMMODITIES SOARING

Commodities were trading in tandem with equities on Thursday with oil soaring.

What's the trade?

I would be long of oil but only slightly, counsels Jared Levy of Peak 6; I’d play it with a covered call.

Elsewhere in commodities, investors are watching the proposed mining tax in Australia, explains host Melissa Lee. Earlier in the week Australia called it a 'lead baloon' leading to speculation they would move away from it.

And with investors chasing beta into months end they've bid metals and miners higher, explains Steve Grasso.

I’m bullish industrial metals, says Patty Edwards. And I’m looking to buy more over the next week or two.

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TOPPING THE TAPE: CITI

Citi led the financial space higher on Thursday after after billionaire investor Bill Ackman announced last night that he had purchased nearly 150 million shares of Citi in the last few weeks.

And he’s not the only Wall Street whale that’s bullish Citi. Take a look:

Whales Bullish on Citi Current Holdings
Pershing Square: 150Mln
Paulson & Co.: 506Mln
Fairholme Funds: 227Mln
David Tepper: "Significant Position"
Source: CNBC.com

What's the trade?

Its not surprising money mangers are bullish on Citi, says Guy Adami, but I think the better place to be is Bank of America, due to stronger valuations and it's more diversified. However, if you’re a trader over the next few weeks I see headwinds for the entire space.

I’m a buyer of Citi under $4, says Steve Grasso. But I’m planning to hold it long term. It’s part of my retirement account.

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CALL OF THE DAY: MICROSOFT

Microsoft made a monster move to the upside on Thursday after FBR upgraded the company to ‘Outperform’ citing a strong PC refresh cycle and attractive risk-reward.

What should you make of it?

Check out our entire interview FBR analyst David Hilal by watching the video here.
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THE OBAMA TRADE

On Thursday President Obama held an extensive new conference in which he addressed a number of issues including off-shore drilling, financial regulation and defense policy.

How should you be positioned in the wake of the President’s potentially market moving comments?

BP is a good pick for those with an appetite for risk, says Jared Levy, because the stock has a high dividend yield. I’d play it with a covered call – buy the stock and sell a covered call – perhaps out in December, he says.

I’m in BP as well, adds Patty Edwards. It’s trading at 7 times – there’s a lot of risk you can build in at 7 times.

I also like Conoco Philips here as a covered call play, adds Jared Levy.

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CALL THE CLOSE

Jared Leavy: I'd be a buyer if we move higher in the S&P.

Patty Edwards: I'm out of this market.

Steve Grasso: I’m a seller up until 1110 in the S&P

Guy Adami: I’d layer into selling positions. I think we test 1100 or 1110 but the next big leg is probably down.

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Trader disclosure: On May 27, 2010, 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 (C), (GS), (INTC), (MSFT); Grasso Owns (C), (BAC), (JPM), (NDAQ), (BP), (LPX); Edwards owns (VXX); Levy Owns (GS); Levy Short (BP) Calls

For Patty Edwards
Edwards owns (AAPL) for clients
Edwards owns (VXX) for clients
Edwards owns (MS) for clients
Edwards owns (JPM) for client
Edwards owns (BAC) for clients
Edwards owns (AMZN) for clients
Edwards owns (GOOG) for clients
Edwards owns (MSFT) for clients
Edwards owns (HPQ) for clients
Edwards owns (YHOO) for clients
Edwards owns (INTC) for clients
Edwards owns (NVDA) for clients
Edwards owns (CSCO) for clients
Edwards owns (QQQQ) for clients
Edwards Owns (BP) for clients

For Jared Levy
Peak6 investments owns and has an options postion (GS)
Peak6 investments is short and has an options postion (MS)
Peak6 investments is short and has an options postion (DB)
Peak6 investments owns and has an options postion (JPM)
Peak6 investments owns and has an options postion (CS)
Peak6 investments owns and has an options postion (BAC)
Peak6 investments owns and has an options postion (UBS)
Peak6 investments owns and has an options postion (C)
Peak6 investments is short and has an options postion (XLF)
Peak6 investments is short and has an options postion (AMZN)
Peak6 investments owns and has an options postion (AAPL)
Peak6 investments owns and has an options postion (YHOO)
Peak6 investments is short and has an options postion (EBAY)
Peak6 investments is short and has an options postion (GOOG)
Peak6 investments owns and has an options postion (MSFT)
Peak6 investments is short and has an options postion (HPQ)
Peak6 investments is short and has an options postion (DELL)
Peak6 investments owns and has an options postion (ADBE)
Peak6 investments owns and has an options postion (BP)
Peak6 investments is short and has an options postion (RIG)
Peak6 investments is short and has an options postion (HAL)
Peak6 investments is short and has an options postion (CVX)
Peak6 investments is short and has an options postion (XOM)

David Hilal
FBR Capital Markets is a Market Maker of (MSFT)



CNBC.com with wires