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Small Cap - Big Losses

The Russell 2000 small-cap index is down 15% from its all-time high in May 2007. What's the small-cap trade if the U.S. is headed for a recession?

Going into a recession, I recommend being long the big-caps, says Karen Finerman. They’re a much more defensive place to hide than the small-caps.

Here’s why - in a recession liquidity dries up - liquidity in the stock and in the financing markets, she says. It’s probably going to get a lot harder for small companies to get cash.

I think the trade is - long SPDR Trust (SPY) short iShares Russell 2000 Index against that, dollar for dollar, Finerman says.

I like that trade, concurs Guy Adami.

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Trader disclosure: On Jan 10, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (YHOO); Najarian Owns (AMR), (BIIB), (C), (MSFT), (EBAY); Najarian Owns (CFC) Options, (WM) Options,(YHOO) Options; Finerman's Firm Owns (KSS), (WMT), (YHOO), (AEO); Finerman's Firm Owns (MDY) Puts And Is Short (MDY); Finerman's Firm Owns (MSFT) Options; Finerman's Firm Is Short (IJR), (IYR), (SPG); Finerman's Firm Is Short (LEH) And Owns (LEH) Puts; Finerman's Firm Owns Russell 2000 Puts And Is Short (IWM); Finerman's Firm Owns S&P 500 Puts And Is Short (SPY)

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