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Halftime: Prepare For Biggest Week Of 2010

Stocks traded sideways on Friday while the dollar remained relative flat ahead of the biggest week of 2010.

The Fast Money desk is bracing for 3 major catalysts that are all but sure to deliver a one -two -three punch next week.

First there's the election Tuesday, with the Street hoping that business-friendly Republicans gain control of the House and perhaps even the Senate.

Then there's Wednesday’s Fed announcement, in which the central bank will likely announce more details about the much anticipated new round of quantitative easing or QE2.

Then on Friday there's the jobs report. It’s hasn’t attracted as much attention as the election or QE2 but it’s likely to be every bit as market moving.

How should you position?

#1: QE2 -- TRADING THE FED

Markets have rallied sharply since late summer when the Fed first telegraphed that another round of quantitative easing may be needed to jumpstart the economy.

However, with the Fed likely to reveal more details about the size and scope at the conclusion of their meeting on Wednesday, many investors fear too much is priced in and the market will be disappointed.

What’s the takeaway?

I suspect that QE2 is fully priced into the market, says Steve Grasso of Stuart Frankel. It would have to be ‘a whole bunch bigger’ if it’s really going to have any more impact. I think we’re at a level in the S&P where it’s time to get short. The gains have probably been made.

I’ve turned cautious last week after being pretty bullish since the end of June, says Jeff Saut of Raymond James on Wednesday’s Fast Money. I think we’re pretty long in the tooth here. We may have put in the peak last week.

No doubt, there are a lot of cross currents in this market, adds Guy Adami. I’ve been bearish on the market. I agree gains to the upside have probably been made.

Options action suggests to me that investors are looking for volatile moves, next week, adds JJ Kinahan.

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Meanwhile, Goldman Sachs says the Fed will likely buy longer dated securities including 30-year bonds as a part of its decision next week, not just shorted dated bonds, explains host Melissa Lee. Take a look at Goldman's note:

”We expect the Fed to announce a program of public debt purchases next week, starting with US$ 500bn and potentially growing up to US$ 2 trillion...these will likely be spread across the entire term structure, including the 30-yr maturity ...it could result in a flattening in the 10-30s portion of the yield curve after the FOMC announcement.”

What should you be watching?

I think Goldman is right on this point and I’d get long 30’s, says Steve Cortes.

#2: TRADE THE VOTE

Looking at the mid-term elections on Tuesday, the new balance of power in both the House and the Senate are up for grabs.

According to the prediction site Intrade.com, the chances of a Republican sweep of the House are about 92%, while Republican chances of gaining control of the Senate are approximately 30%.

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

What’s the trade?

I think the market needs to dial back expectations of what the GOP can do if the Republicans gain control of the House,” says Andy Busch of BMO Capital on Tuesday’s Fast Money. I can tell you it's really unlikely anything gets done in the lame duck session. That could be a jolt of reality for equity markets, he says.

I’m a buyer of financials and energy stocks and a seller of health care stocks, says Steve Grasso; I expect we see Republican's do some cost cutting in health care. Any stocks that rely on Medicare and Medicaid are to be sold.

I’m skeptical of the banks, says Steve Cortes. Although a lot negative is baked into these names, I think there’s more downside. We’re looking at a flatter yield curve, anemic loan demand, and I think there will be another leg of decline in the real estate market.

I’m seeing options investors wade into financials but also buy puts for protection, says JJ Kinahan.

#3: JOBS REPORT

With so much attention on the election and the Fed it’s easy to forget that there’s another big event next week; Friday’s jobs report. Ahead of the numbers, we had positive signs from the labor market with jobless claims unexpectedly dropping to a 3 month low.

What’s the trade?

If the market is disappointed by the election or QE2 don’t call it a year in terms of moves next week, says Joe Terranova on Wednesday’s Fast Money, especially if we get a strong jobs report. That could reignite the march higher.

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TOPPING THE TAPE: MICROSOFT

The traders are closely watching the action in Microsoft after the company posted a 52% jump in first quarter profits, boosted by its Windows 7 and Office 2010 sales.

What’s the trade?

With a 2.5% dividend yield and incredible balance sheet, I’d give this stock a chance, says Pete Najarian.

My clients are not excited about this stock, reveals Steve Grasso. They want a management shake-up. That’s what I think is needed to get the Street excited about Microsoft.

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FAST FLASH: MONSTER

Shares of employment website Monster Worldwide neared a 2010 high after the company reported third quarter bookings were up almost 30% and it sees an increase in the need for skilled talent worldwide.

What’s the trade?

I wouldn’t rush in, says Steve Cortes. Rivals aren’t performing nearly as well.

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CALL TO THE FLOOR: EXCHANGES

Despite concerns of low trading volume in the third quarter, Nasdaq OMX beat expectations when it reported earnings on Friday and announced an additional $150m buyback.

How should you trade this stock now? Don’t make a move until you check out our conversation with Nasdaq OMX CFO Adena Friedman.

Watch the video now!




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Trader disclosure: On October 29th, 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 (ECA) call spreads; Cortes is short (AAPL); Cortes owns (GOOG); Cortes is short (RSX); Cortes is long S&P 500; Cortes owns (K); Cortes owns (TSN); Cortes is short Euros; Cortes is short crude oil; Cortes is short gold; Cortes owns U.S. Treasuries; Kinahan is long (KFT); Kinahan is long (MSFT); Kinahan is long (NFLX) options; Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST)

For Steve Gasso:
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Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (OPEN)
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