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Halftime: How Low Will Bears Push Market?

Selling dominated afternoon trade on Monday with ongoing concerns about Europe overshadowing any optimism generated by the latest mergers including a deal inked by Universal Health Services to buy Psychiatric Solutions, for about $2 billion.

Fear that Europe may derail the global recovery sent oil prices tumbling, at one point they slipped below the psychologically important $70/barrel level, with the energy sector leading declines in the S&P .

How should you be positioned now?

Strategy session with the Fast Money traders

Looking at the S&P, 1124 was the 150-day moving average, explains Steve Grasso of Stuart Frankel. Now that we’ve broken below 1124 the next important level is 1100, which is the 200-day moving average. I expect the market will trade toward that level.

But if we hit 1100, we'd be in full correction territory, adds Zach Karabell of RiverTwice. We're already there in the Nasdaq. If we see a bona fide correction across all the major indexes I’d be a buyer of solid companies that are oversold; Atheros for example.

The Vix is climbing, notes OptionMonster Jon Najarian, but we’re coming up on an options expiration Friday. I’m looking for the next couple days to be volatile and then for the Vix to pullback. I just got back from Europe and I’m not seeing the same amount fear that I’m seeing here in the States.

I think it’s amazing that there’s not a greater level of fear in Europe, muses Fast Money trader Tim Seymour. We’re looking at deflation in Spain for the first time since 1986 and $4.5 billion in big auctions out of Spain and Italy this week. The euro is under pressure. Combine that with China’s slowdown, and I’m concerned about resources.

As for the S&P, I expect the bears to keep the market below 1120 and the rest of the week looks challenging, Seymour says.

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EURO TO STABILIZE?

New data released by CFTC shows that net speculative short positions in the euro are at new record.

But what’s intrigued the Fast Money traders is past action in the Dixie.

The bottom in the Dollar Index occurred precisely at the same time as the peak in short positions.

Will history repeat itself?

I think 122 may be a level of support for the euro temporarily, says Tim Seymour. Right now the euro is oversold but we’re going through a fundamental reassessment of the troubles in Europe so I’m not sure the technical indicators will hold.

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TAKE YOUR POSITION: WAL-MART

Walmart, the world's biggest retailer, is on deck to report earnings Tuesday morning.

The stock has significantly underperformed the broader markets year to date, falling about 2%.

What must you know?

Walmart typically trade’s conversely to the tape, explains Steve Grasso.

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TOPPING THE TAPE: CREE

Cree topped the tape on Monday after Lazard upgraded the stock to a Buy with a $90 price target, citing beneficial lighting trends.

Analyst Daniel Amir believes Cree's revenue growth should outpace the industry in 2010 and 2011 as the company takes advantage of its early lead in this space.

”The company is growing 70% top line and earnings are more than doubling,” Amir says.

What’s the trade?

Lazard suggests the recent pullback in the stock presents a buying opportunity.

*Check out our entire interview with Daniel Amir. Watch the video above.

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UNUSUAL ACTIVITY:DKS

Jon Najarian has spotted unusual options action in Dicks Sporting Goods.

Big block trades suggest it could beat on earnings, says Najarian. I think it could trade toward $30 on a good report.

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CALL THE CLOSE

Tim Seymour: I expect the bears to keep the market below 1120 and the rest of the week looks challenging.
Jon Najarian: I think we close lower.
Steve Grasso: I think the market is moving toward 1100.
Zach Karabell: It’s a dicey market but I’d look at solid names that are down 15% such as Atheros.


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Trader disclosure: On May 17, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova Owns Gold; Terranova Owns (PFE), (GLD), (TER), (YHOO), (AXP); Terranova Is Short (X), (GOOG); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Finerman's Firm Is Short (IJR), (IWM), (MDY), (SPY); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leap; Finerman Owns (BAC), (BAC) Preferred; Finerman Owns (GOOG); Finerman's Firm And Finerman Own (HPQ); Finerman's Firm Owns (JPM), (JPM) Leap; Finerman Owns (JPM); Finerman's Firm Owns (TGT); Finerman Owns (WFC) Preferred; Finerman's Firm Owns (WMT); Najarian Owns (AMD) Calls; Najarian Owns (AKAM) Call Spread; Najarian Owns (C) Calls; Najarian Owns (F) Calls; Najarian Owns (GOOG) Calls; Najarian Owns (HPQ), Is Short (HPQ) Calls; Najarian Owns (MS), Is Short (MS) Calls; Najarian Owns (MCD) Call Spread; Seymour owns (INTC); Jon Najarian owns (DKS); Zach Karabell owns (ATHR); Grasso Owns (BP), (NDAQ), (DYN), (LPX), (ASTM), (ABK), (BAC), (BGP), (C), (CVGI), (JPM), (PRST), (PFE), (BA), (T), (CSCO)

For Joe Terranova
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 Brian Kelly
Kanundrum Capital Owns (GFI)
Kanundrum Capital Owns (GLD)
Kanundrum Capital Owns (TLT)
Kanundrum Capital Owns (AUY)
Kanundrum Capital Is Long U.S. Dollar
Kanundrum Capital Is Short Euro
Kanundrum Capital Is Short British Pound
Kanundrum Capital Is Short Swiss Franc
Kanundrum Capital Is Short (XLK)
Kanundrum Capital Is Short (XLI)
Kanundrum Capital Is Short (XLV)
Kanundrum Capital Is Short (XLY)
Kanundrum Capital Is Short (HBC)
Kanundrum Capital Is Short (XLF)


For Steve Grasso
Stuart Frankel And Its Partners Are Short (QQQQ)
Stuart Frankel And Its Partners Are Short (CL)
Stuart Frankel And Its Partners Are Short (AAPL)
Stuart Frankel And Its Partners Own (AMR)
Stuart Frankel And Its Partners Own (BAX)
Stuart Frankel And Its Partners Own (DYN)
Stuart Frankel And Its Partners Own (CUBA)
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 (PALM)
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 (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)

For Daniel Amir, Lazard Capital Markets Analyst
Lazard Capital Markets LLC is a market maker in (CREE)

For Steve Cortes
Cortes Is Short Gold, Silver
Cortes Is Long Euro

For Paul Hickey
Hickey Owns (BAC)
Hickey Owns (C)

For Ananda Baruah
Brean Murray, Carret & Co. Is A Market Maker In (DELL)

Other Relevant Disclosures:
Terranova Owned (YHOO) On 4/8/10

CNBC.com with wires

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