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Pros: Are Sharp Gains in Oil Here to Stay?

Commodities ended the first month of the year up more than 2 percent with oil front and center after unrest in Egypt sent prices soaring.

London's Brent crude settled above $101 with U.S. crude, the benchmark for world oil prices, racing to catch up.

"This was exactly the type of black swan event nobody was expecting this year -- a political revolution in the Middle East -- and it's turned out to be a boon for oil," says Adam Sarhan, founder of New York-based financial advisory Sarhan Capital in a Reuters interview.

Are the sharp gains in oil here to say?

Instant Insights with the Fast Money traders

Joe Terranva thinks so. He tells the desk that historically the period “between MLK Day and President's Day is when oil prices typically bottom. If this is the weakest part of the year, we’re probably looking at seriously higher prices.”

Strategic investor Dennis Gartman, also thinks the path of least resistance in crude is higher. “Crude could go another $20 higher,” he speculates, “(especially) if we start to see unrest spread across the Arab world."

Guy Adami is a little more skeptical. Before the black swan event, “Oil looked like it put in a double top and was about to break down,” he says. “I think the onus is on the bulls to keep the surge going. If the turmoil dies down, I think crude slides.”

”Plus crude rallied in isolation,” says Steve Cortes. ‘Unless you think the Suez will be closed I think the rally is begging to be sold.” Cortes argues that he EEM is flat to slightly lower over the last 3 months. “Can energy continue to march higher without demand from emerging markets. I say not.”

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FOOD INFLATION

Among the many things the people of Egypt are protesting, perhaps no issue is more incendiary than the rapidly rising price of food.

“There are simply too many countries facing food shortages for their people as the prices for proteins, grains, and foodstuffs have escalated beyond their abilities to purchase and it has become a problem that government must solve in order to stay in power,” said Jim Bower of Bower Trading, in a note this morning.

Meanwhile, new reports show that world food prices in January are expected to be close to record highs seen in December, an economist at the United Nations' food agency said on Monday ahead of the release of the agency's monthly food index.

What’s the trade?

In the wake of events in Egypt, countries that may be politically at risk understand they must feed their people, explains Dennis Gartman. That should put a bid underneath the grain markets.

I'd trade it longDeere, says Guy Adami. I think that stock wants to go to $100.

If food inflation is going to continue I’d own the US over emerging markets, says Steve Cortes. Food input costs are just not that important to our economy when compared to the emerging markets. But the real concern is what it means for China, he says. China censored news about Egypt coming in over the Internet.

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AFTER HOUR ACTION: BIDU

On Tuesday, shares of Baidu climbed in extended trade after the company said it nearly doubled its revenue in the fourth quarter, and forecast first-quarter revenue that surpassed Wall Street estimates.

Looking at the numbers, the search giant said it expected revenue for the first quarter to come in between $360.6 million and $371.2 million, ahead of the average analyst forecast for $354.2 million.

Baidu's fourth-quarter net income rose to $175.9 million, or 50 cents a share, from $62.7 million, or $1.80 a share, a year ago, before a 10-for-1 stock split. That beat analysts' average forecast of EPS of 45 cents.

Revenue in the fourth quarter totaled $371.3 million compared with $184.7 million a year ago. Analysts, on average, had expected revenue of $360.3 million, according to Thomson Reuters I/B/E/S.

What’s the trade?

It’s currently trading at 45 times, but that has seemed expensive for quite a while, says Guy Adami. There’s plenty of growth in this name to come.

If you must play this stock I think you need to buy and hold it, says Zach Karabell. The valuations are stretched but they’re no more stretched than the cloud stocks and Baidu does have a very strong presence in a rapidly expanding market.

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ALPHA NATURAL RESOURCES - BIG DEAL

Energy traders are chattering about the latest big deal in the space. Over the week-end, Alpha Natural Resources agreed to acquire Massey Energy for a approximately $69.33 a share. That represents a 21 percent premium over Massey's closing share price of $57.23 on Friday.

In the wake of the news, shares of rival coal mining companies rose on speculation of a wave of consolidation in the industry.

What’s the trade?

In the space, I’d look at Peabody, says Joe Terranova. I know valuations are rich but I think there’s room to run. The deal highlights just how important their resources are.

The news makes me bullish on investment banks, says Steve Cortes. I think it’s very good for the future of deal flow.

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EAR TO THE WALL: BP DIVIDEND?

The traders suggests watching BP after reports suggested the oil giant may return to a dividend payout as a part of its earnings statement out on Tuesday.

Should you buy here?

It appears troubles for BP are in their rear view mirror, says Guy Adami. Looking at valuations I think the stock is attractive.




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Trader disclosure: On Jan. 31, 2011, 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); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Adami's wife works for (MRK); Cortes owns (PM); Cortes owns (MO); Cortes owns (EXC); Cortes owns (MS); Cortes owns (GS); Cortes is long U.S. Treasuries; Cortes owns (TSN); Cortes is short (LVS); Cortes is short (BAC); Terranova Owns (VRTS); Terranova Owns (C); Terranova Owns (UPL); Terranova Owns (GM); Terranova Owns (PEP); Terranova Owns (MS); Terranova Owns (POT); Terranova Owns (LTD); Terranova Owns (SU); Terranova Owns (CVI); Terranova Owns (CVE); Terranova Owns (CPX); Terranova Owns (CNQ)

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