Halftime: Does S&P Bounce Confirm Next Leg Higher?

On Friday the traders were closely watching the action in the S&P which surged back above the key 1130 level.

Market technicians consider the move rather bullish, considering 1130 was a level where the S&P failed in both June and August. They say it confirms the theory that what was once resistance has now become support.

The bullish sentiment was amplified by market fundamentals. The latest economic data showed about a 4% increase in business spending last month with manufacturing activity providing a particular bright spot.

Does the S&P bounce confirm the next leg higher?

Instant Insights with the Fast Money traders

Some of Friday’s move higher is likely short covering, explains Steve Grasso of Stuard Frankel. On Thursday investors thought the market was about to fall off the cliff again. Then Friday it didn’t pan out and now bears are scrambling to cover their shorts.

I was one of those skeptics, admits OptionMonster Pete Najarian and the rally caught me off guard. The way stocks closed Thursday combined with the spike in the Vix looked like the beginning of a sell-off. But now I think the market is going higher.

Looking more closely at the technicals the next key level is 1150, Steve Grasso adds. If we can get above 1150, it opens to door quickly to 1165 as perhaps even 1185. Also, it’s important to note that the S&P can fill gaps and, technically, the trend remains bullish. That means the market can fall as far as 1110 and the rally remains in tact as long as we don't break below. Big picture, I think the S&P is going higher.

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NO MATTER WHAT STOCKS GO HIGHER?

Also, comments from hedge fund heavy weight David Tepper of Appaloosa generated tailwinds for bulls. In a CNBC exclusive interview he said he believes the economy will improve and doesn’t expect the S&P to slide much lower than 1100. (Click here for our entire interview.)

”Either the economy gets better by itself and what assets are going to do well… stocks,” he said. ”Or the economy doesn’t pick up and the Fed steps up with QE and what does well… everything!”

More insights from the Fast Money gang

I also think the market is going higher, says Joe Terranova. Don’t forget we’re in the end of September which is historically not very good. But, this year we haven’t had the typical sell-off. I have to believe money managers are caught by surprise and now they’re forced to chase performance. To me the play is the Nasdaq, CME and other exchanges as a bet that volume is not as bad as expected.

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TOPPING THE TAPE: GLOBAL GROWTH

Global growth stocks Alcoa and Boeing led the Dow higher Friday on that stronger than expected durable goods data mentioned above.

Meanwhile Credit Suisse raised its price target on Caterpillar to $95 saying 2011 is going to be a breakout year for this firm.

How should you trade?

It's had a big run already but I still like Caterpillar , says Pete Najarian.

I’d play industrials with PCP as well as JoyGlobal, adds Joe Terranova.

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TOPPING THE TAPE: FINANCIALS

After a rough week the financials turned around Friday.

What’s the trade?

I think we’re seeing a relative bounce, says Zach Karabell, but with so much uncertainty in the space I expect the financials to remain challenged. Don’t look for market dynamism here.

Volatility is coming down in financials and that suggests to me investors don’t expect a lot of movement, adds Pete Najarian. I think they remain in a range.

I think the bottom will be set in financials when a big financial issues a major buy back, says Joe Terranova. That will be a signal that they no longer need to hoard cash.

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FAST FLASH: AMAZON

The traders are watching Amazon which surged to a new all time high on Friday.

What should you make of it?

Options action in the space suggests investors are looking for even more upside, reveals Pete Najarian.

That says to me the whole theme of Internet commerce is a theme that’s clearly driving commerce, muses Zach Karabell. These are high margin, incredible business growth stories.

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Trader disclosure: On Sept. 24th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Pete Najarian owns (AMZN) call spreads; Pete Najarian owns (NTAP) call spreads; Pete Najarian owns (WFC) put spreads; Terranova Owns (POT), (APA), (AAPL), (ARUN), (BMO), (C), (IBM), (HES), (JOYG), (XBI), (FTO), (OXY), (ORCL), (PEP), (RSH), (SU), (RIG), (UPL), (VRTS); Karabell owns (GS), (RIMM), (AAPL); Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST); Karabell owns (GS), (RIMM), (AAPL)

For Joe Terranova
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For Steve Grasso:
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Stuart Frankel & Co and it’s partners are short (QQQQ)

For Walter Pritchard
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Citigroup has received compensation for investment banking services provided within the past 12 months from Oracle Corporation
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