The Fast Money traders spent Wednesday navigating the Dow's worsttriple digit tailspin since October after overseas action dragged down sentiment here in the US.
Specifically, investors worried that China may hamper economic growth after Beijing authorities instructed some major banks to curb lending over the rest of this month after an early burst of credit.
Also, concerns about the debt of Greece pushed the euro to a five-month low against the U.S. dollar .
Both moves weighed down commodity prices. What should you be watching now?
Instant Insights with the Fast Money traders
I’m watching the action in the S&P, reveals Tim Seymour. We’re at key levels right now; at 1128 we’re at the 20-day moving average. But I expect it will hold.
I’m watching 1114 on the S&P, adds Scott Nations of NationsShares. That’s the 50-day moving average. It’s been support since late July. If we break below 1114 we’re in no-man’s land.
Before we drop below the 50-day moving average I’d protect myself by buying downside puts and selling upside calls, adds Jared Levy of Peak6. If you’re going long I’d proceed with caution.
I’m watching the dollar , says strategic investor Dennis Gartman. I think we’re seeing a watershed shift in favor of the dollar and as a result I expect further pressure on commodities prices.
Now who are the beneficiaries, he asks. Live stock producers such as Smithfield Foods , as well as ethanol producers are both beneficiaries. If you’re looking to be a buyer, be a buyer there -- but be careful. The stock market will probably remain under pressure as the dollar gets stronger. In other words, buy the users of commodities and avoid the sellers of commodities
IS CHINA PUNISHING BANKS
China’s decision to slam the brakes on lending may not be as dramatic as it seems.
According to our news partner, Reuters, some Chinese banks lent more than half of their quota for all of 2010 in the first two weeks and were lending excessively to new projects.
They said China's top leaders, who are checking the lending data every day instead of at the end of each month, were not happy with the fast pace.
Overall inflation also has been on the rise as the Chinese economy has picked up speed, adding to the pressure on the authorities to temper economic activity and thus temper lending, writes the New York Times.
How should you trade this?
The resource names are most vulnerable to this, says Tim Seymour. Watch PetroChinaChina Petroleum , Aluminum Corp of China and the like. They could fall as much as 10% from here.
BANK ON BANKS?
The traders are closely watching action in the financials after Wells Fargo and U.S. Bancorp reported better-than-forecast quarterly earnings while rival BofA reported a wider-than-expected loss – but also said it got a boost from Merrill Lynch.
Adding to the positive commentary, BofA also said its credit problems were beginning to stabilize. Its fourth-quarter provision for credit losses was $10.1 billion, down 14 percent from the third quarter.
The fourth-quarter results for the three banks underscore how the biggest banks are getting bigger, and profiting from it along the way. The winners and losers in the next credit cycle may be determined in large part by which banks are gaining assets now.
Elsewhere in the sector boutique banks such as State Street and Jefferies also beat expectations.
What’s the trade?
In the space I like Jefferies and Morgan Stanley more than BofA, says Brian Kelly.
CALL THE CLOSE
Tim Seymour: I expect to the S&P to hold.
Jared Levy: I’m a seller of the 160-150 bull put spread in GS
Brian Kelly: I’m doing nothing.
Scott Nations: I’m a seller.
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Trader disclosure: On January 20th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders;
Peak6 Owns (GS)
Peak6 Is Short (MS)
Peak6 Owns (GOOG)
Peak6 Owns (GLD)
Kelly Owns (BAC)
Kelly Owns (C)
Kelly Owns (JPM)
Kelly Owns (MS)
Kelly Owns (RYN)
Kelly Is Short (EURUSD)
Kelly Owns (FXI)
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