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Najarian's Short Squeeze Trade

The Dow Jones industrial average closed below 7,000 for the first time in more than 11 years as investors grew pessimistic about the health of banks, and in turn the economy. The blue chips hadn't traded below 7,000 since Oct. 28, 1997, and last closed below that mark on May 1 of that year.

The credit crisis and recession have now slashed half the average's value since it hit a record high over 14,000 in October 2007.

How should you trade?

We asked veteran trader and FM contributor Jon Najarian for a strategy. He told us, "I think the trade is playing any short squeeze."

Remember a short squeeze is "a situation in which a lack of supply and an excess demand for a traded stock forces the price upward," According to Investopdia, "if a stock starts to rise rapidly, the trend may continue to escalate because the short sellers will likely want out. For example, say a stock rises 15% in one day, those with short positions may be forced to liquidate and cover their position by purchasing the stock. If enough short sellers buy back the stock, the price is pushed even higher."

"The stock that’s on my radar is Wells Fargo," reveals Najarian. "I think you could get a pop into the mid to high teens on short covering."

"Also keep an eye on Vale ," he counsels. "The short interest in this stock is something like 35% and I’d be on the other side of that."

And if you're looking to play gold Najarian says "buy the Miners ETF and sell the Gold ETF against it. And look at Ivanhoe . "



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Trader disclosure: On Mar. 2nd, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AAPL), (EEM), (BAC), (FXI); Seymour's Firm Owns (FCX); Terranova Owns (DIS), (FXC), (XBI), (BRCM), (WYNN), (INTC), (DELL), (JOYG); Terranova Owns (AMGN) & (AMGN) Puts; Terranova Owns (IBM) Call Spread; Terranova Owns (COP) Calls; Terranova Owns MACI Oil Futures; Macke Owns (MS), (GS), (SDS), (TM), (AAPL), (WOS); Karabell Owns (AAPL), (FCX), (GOOG), (GLD), (GE), (JPM)

J. Najarian Owns (RIO) & (RIO) Calls
J. Najarian Owns (WFC) & (WFC) Calls

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