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Halftime Report: China Baked Into The Cake?

Stocks edged off their lows around lunchtime Friday after a surprise move by China to cool down their overheated economy caught the Street off guard.

For the second time in two months, Beijing announced plans to raise reserve requirements triggering worries about how a forced slowdown of China would impact the American markets.

The China policy move immediately boosted the U.S. dollar and knocked commodity prices and resource stocks.

What should you be watching?

Instant Insights with the Fast Money traders

Market pros are watching the 200-day moving averages in commodities and metals, explains Steve Grasso of Stuart Frankel and those levels have been holding. We’re bouncing off those levels – that’s very telling.

But perhaps more important is the action in copper, he adds It is still above $3. I take that as an all clear sign. As far as I’m concerned China is baked into the cake.

Also, the market is now buying bad news, adds Scott Redler T3. That’s another sign that suggests China is baked into the cake. Right now I’d be a buyer of weakness. That’s what the trade is.

I expect to see Beijing raise rates by an additional 100 basis points this year, adds Tim Seymour. I don't think that's any surprise. But I also don’t think China triggered selling on Friday. I think weakness in Friday’s market stems from concerns about Greece and the potential ripple.

Looking at the market broadly, I don’t think you can stick a fork in the March rally and say its over, but I do think we’re starting to see a top, adds Bill Strazzulo of Bell Curve. I expect the S&P is stuck is in a range with 1150 at the top, 900 fair value and 750 at the bottom.

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BANKS BITTEN HARD

The traders are also closely watching the action in financials with weakness in this sector sparking fears of a sharper correction.

What’s the bank trade?

I’m seeing big buyers of the March 14 puts in the XLF, explains JJ Kinahan of TD Ameritrade. That suggests to me there’s nervousness in this space.

The fact that the XLF is below $14 is negative for the banking sector as well as the market as a whole, says Bill Strazzullo. The next major support in the XLF doesn’t come until $12.50. The longer we sit below $14 the more likely we wash down to $12.50. Financials led on the way up and I fear now they’re starting to break down.

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TOPPING THE TAPE: SELECT TECH NAMES

Amid a sea of red tape on Friday the traders are closely watching the action in tech as a brighter spot in an otherwise bleak market.

What’s the tech trade?

Tech is looked upon as the 'safe' play, explains Steve Grasso. Investors are pulling money out of trades they're less sure of -- and putting it back to work in what they're calling 'the old standby.'

That's right; in a downtape investors go to the strongest names, explains Scott Redler of T3. And they’re going into Intel , Apple, RIM and technology broadly.

In the Nasdaq I’m cautious, counters Bill Strazzulo. The Nasdaq outperfofrmed the Dow and the S&P in the run up since March. Conversely, now there’s likely more downside in the Nasdaq that the other two indexes.

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CALL THE CLOSE

Steve Grasso: I’m a seller until the S&P trades above 1100.

JJ Kinahan: I’d be a buyer of a Friday afternoon rally.

Scott Redler: I’m a buyer as long as 1060 holds on the S&P.

Bill Strazzullo from Boston: I’m a seller from 1076 – 1084.


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Trader disclosure: On February 12, 2010, 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), (C), (GS), (INTC), (MSFT), (BTU), (NUE); Kaminsky Owns (LULU); Finerman's Firm Is Short (IJR), (MDY), (SPY), (MDY), (USO), (UNG); Finerman Owns (AAPL); Finerman's Firm And Finerman Own (CVS); Finerman's Firm And Finerman Own (GOOG); Finerman's Firm Owns (MSFT); Finerman's Firm And Finerman Own (RIG); Finerman's Firm And Finerman Own (WFC) Preferred; Finerman's Firm And Finerman Own (JPM); Finerman's Firm Owns (STJ); Finerman's Firm Owns (BSX); Terranova Owns (JPM), (RIMM), (IBM), (QCOM), (PALM), (GOOG), (EMC), (AAPL), (DELL), (MSFT); Terranova Is Long Oil Futures (Dec. 2010 Contracts, Dec. 2011 Contracts)

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