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Halftime: Beware The Bear

Published: Thursday, 20 May 2010 | 2:02 PM ET

Text Size

By: Constance Parten

Halftime Report

With the S&P [.SPX Loading... () ] entering correction territory, and the Dow [.DJIA Loading... () ] down sharply on the day, what's the best move for your money now?

FLIGHT TO LIQUIDITY
Steve Grasso said the major players are moving heavily into cash.
Traders who had gainers are selling them to liquidate. There's no such thing as a bad sale. A hedge fund manager just told me that, and that's the truth.

Is there anything to buy?

Patty Edwards said she's been making a shopping list for quite some time. She thought she'd buy Apple [AAPL Loading... () ] at $250 but is "not feeling the love. I think it could go to $225."

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OPTIONS EXPIRATION AND VOLATILITY
Options expiration was responsible for the volatility spike earlier this week as institutional players were setting themselves up and rolling into June expirations, Jon Najarian said, thereby extending their protection.

"Most of the big players have protection on right now. A lot of the folks I talk to have gone to cash or as close to it as they can."

Major players are no longer waiting until the end of the week to wrap up their options positions, Grasso said. They're ahead of the curve. It's primarily the retail investor now.

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PLAYING VOLATILITY
With the VXX [VXX Loading... () ] up sharply this week, Gary Kaminsky said he continues to believe that this is the movement of the market. Risk is coming out. I continue to believe that this is the beginning of the problems (in Europe) not the end.

So how can you play the VXX now? If you want to speculate on the increased volatility, stay naked long volatility, Kaminsky said. If you own equities, if you own stocks...you must protect yourself in the options market, either with puts or being long volatility. You must buy protection.

Najarian added that investors should buy protection as a spread. This is a very dangerous time to be buying protection, he said.

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SIGNIFICANT FOREX LEVELS
Yen strength across most currencies reminds Brian Kelly of Kanundrum Capital of what happened in the foreigh exchange two weeks ago when there were massive moves of 2 and 3 percent. This is just a global derisking, he said.

Levels to watch this afternoon:
A break of 72.50 on the AUD/YEN means investors should watch out for the equity market, Kelly said.
89 on USD/YEN. If we break that, that's another key level for today and into this afternoon.

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FLASH CRASH LOW TO BE TESTED
Even as regulators continue examining the activities of large traders and are reviewing the role of electronic trading platforms, Kelly said he believes the 'Flash Crash' low of 1065 will be tested soon.

"I think that's going to act as a magnet and we're probably going to break through it. I think we go through that May 6 low."

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WORRISOME TECHNICALS
Technology bellwethers are all down significantly, including Google [GOOG Loading... () ], Oracle [ORCL Loading... () ], Cisco [CSCO Loading... () ] and Microsoft [MSFT Loading... () ]. From a technical standpoint, there seems to be a breakdown going on. Kaminsky said fully invested, long-holding managers are feeling the need to move into cash and selling the most liquid, large names.

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CRUDE GETTING PUMMELLED
Oil fell below $68 a barrel on Thursday to its lowest in nearly eight months, under pressure from concern that the euro zone debt crisis will cut both risk appetite and demand for oil. There's no reason someone would be selling crude into 65 unless they're moving into cash, Najarian said.

Kaminsky said it's most important to be a realist. "You have to be concerned."

Joe Terranova said no one wants crude right now and people are pulling out of the futures.

This is expiration driven and this could get real ugly on a headline level, he added.

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CALL THE CLOSE
Edwards: If you don't have the VIX... you sit back and watch and pop some popcorn.
Grasso: Getting long this market is like playing leapfrog with a unicorn. Where's the upside? Sold.
Kominski: Sometimes losing money is worse than missing the opportunity to make it.
Najarian: If the programs do gag again, and Mary Shapiro and the regulators that should've been telling us what was wrong with this -- If they can't come out and tell us what was wrong investors won't feel like coming back in for quite a while.

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Trader disclosure: On May 19 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Jon Najarian owns (GS) puts; Jon Najarian owns (JPM) puts; Jon Najarian owns (XLF); Jon Najarian owns (SPY); Jon Najarian owns (NYX) and (CME); Jon Najarian owns (NYX) and (CME) puts; Jon Najarian owns seats on NYSE, CME & CBOE; Grasso Owns (BP), (NDAQ), (DYN), (LPX), (ASTM), (ABK), (BAC), (BGP), (C), (CVGI), (JPM), (PRST), (PFE), (BA), (T), (CSCO), (X); Najarian Owns (AMD) Calls; Najarian Owns (C) Calls; Najarian Owns (CAT) Call Spread; Najarian Owns (DELL) June Calls, Is Short (DELL) May Calls; Najarian Owns (HPQ), Is Short (HPQ) Calls; Najarian Owns (MS), Is Short (MS) Calls; Najarian Owns (MCD) Call Spread; Najarian Owns (NOVL) Calls; Finerman's Firm Is Short (IJR), (MDY), (IWM), (SPY); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leaps; Finerman Owns (BAC), (BAC) Preferred; Finerman Owns (GOOG); Finerman's Firm And Finerman Own (HPQ); Finerman's Firm Owns (JPM), (JPM) Calls; Finerman Owns (JPM); Finerman's Firm Owns (TJX); Finerman Owns (WFC) Preferred; Finerman's Firm Owns (YUM); Terranova Owns (PFE), (GLD); Cortes Is Long Euro; Cortes Is Long Crude Oil; Edwards owns (VXX)

For JoeTerranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (DRYS)

For Dan Niles
Alpha One Capital Partners Owns (AAPL)
Alpha One Capital Partners Owns (BIDU)
Alpha One Capital Partners Owns (EBAY)
Alpha One Capital Partners Owns (GS)
Alpha One Capital Partners Owns (CREE)
Niles Invests In Alpha One Capital Partners

For Brian Stutland:
Stutland Equities Is A Market Maker In VIX
Stutland Equities Is A Market Maker In (SPY)
Stutland Holds A Seat On CBOE

For Peter Boockvar
Boockvar Owns Euros

For Patty Edwards
Edwards owns (VSS) for clients
Edwards owns (SPY) for clients
Edwards owns (QQQ) for clients
Edwards owns (MSFT) for clients
Edwards owns (GOOG) for clients
Edwards owns (CSCO) for clients
Edwards owns (ORCL) for clients
Edwards owns (CPB) for clients
Edwards owns (KO) for clients
Edwards owns (AAPL) for clients
Edwards owns (HPQ) for clients
Edwards owns (AAPL) for clients
Edwards owns Gold for clients
Edwards owns Platinum for clients

For Steve Grasso
Stuart Frankel And Its Partners Own (APC)
Stuart Frankel And Its Partners Own (AMR)
Stuart Frankel And Its Partners Own (BAX)
Stuart Frankel And Its Partners Own (CUBA)
Stuart Frankel And Its Partners Own (DNR)
Stuart Frankel And Its Partners Own (DYN)
Stuart Frankel And Its Partners Own (GERN)
Stuart Frankel And Its Partners Own (HSPO)
Stuart Frankel And Its Partners Own (MERC)
Stuart Frankel And Its Partners Own (NWS.A)
Stuart Frankel And Its Partners Own (NYX)
Stuart Frankel And Its Partners Own (PDE)
Stuart Frankel And Its Partners Own (PFE)
Stuart Frankel And Its Partners Own (PRST)
Stuart Frankel And Its Partners Own (RDC)
Stuart Frankel And Its Partners Own (TLM)
Stuart Frankel And Its Partners Own (TRV)
Stuart Frankel And Its Partners Own (XRX)
Stuart Frankel And Its Partners Own (SDS)
Stuart Frankel And Its Partners Are Short (QQQQ)
Stuart Frankel And Its Partners Are Short (CL)
Stuart Frankel And Its Partners Are Short (AAPL)

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