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Should You Position For A Bear Market?

Thursday, 20 May 2010 | 5:28 PM ET

A massive sell-off on Wall Street has thrust the stock market into an official 'correction'. Some are calling for another bear market ahead.

The S&P 500 finished down 12 percent from its April 23, 2010, closing high marking the worst day since late April 2009. The index also ended below its 200-day moving average, a sign the momentum downward could build.

The weakness again largely stems from the mounting crisis in Europe and whether financial concerns will drag down the global recovery.

How can you protect and profit while others panic?

Strategy Session with the Fast Money traders

The market breached a slew of important levels, says Pete Najarian; oil fell below $70. Also the S&P broke below 1100, a level bulls were hoping would provide support. And in the the options market the action was in major index puts. It's all bearish. (2.5 million puts traded across all the exchange traded funds, which is three times the normal - a sign of heightened fear.)

Word on the Street
The Fast Money traders take a look at today's top business stories.

If you’re looking for an important technical level, traders on the floor of the NYSE are watching 1065, the ‘flash crash’ low, reveals Steve Grasso of Stuart Frankel. That seems to be all that matters. I used to be a screaming bull but no more.




I’m worried that the market takes out 1065, adds Joe Terranova. As far as I can tell, it’s risk off.

I just can’t feel good about this market either, says Gary Kaminksy. Credit markets are injured. I don’t see a bounce anytime in the near term.

I’m also a little fearful, admits Karen Finerman. However, I am putting together a shopping list though I’m not ready to pull the trigger. And I’m sticking with the higher quality big cap names.

If you’re looking for a buying opportunity I’d look at Visa, says Pete Najarian. Near $70 I’d buy the stock and sell the upside call.

If you want to play cherry-picker, you can look at Clorox and Walgreen, counsels Kaminksy but big picture I’m bearish.

I’d look at Campbell Soup , adds Patty Edwards. People will continue to buy their products long-term.

I’d put CVS , Disney and Halliburton on the radar, adds Joe Terranova.

What do you think? We want to know!

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FINANCIALS BREAKING DOWN

Banks stocks, which are more sensitive to economic cycles, were among the hardest hit in Thursday's sell-off, with the Financials ETF sharply lower by the close.

Not only did concerns about Europe hit the sector but uncertainty surrounding the final outcome of the financial reform bill also weighed on the sector.

What’s the trade?

The trade I’m most excited about is longGoldman and Morgan the minute fin reg passes, says Joe Terranova. I think we could see a bounce as uncertainty is removed from the trade.

Health care stocks rallied after the legislation passed, reminds Karen Finerman. The same could happen in this sector. I have Citigroup on my radar.

I’ve spotted unusual options action in JPMorgan, reveals Pete Najarian. A large volume of puts changed hands; I think investors were looking for the financials to fall apart but it could have been protection buying.

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COMMODITIES LEAD DROP

Commodities played a big part of Thursday’s sell-off, with crude dropping and gold down for the third consecutive session; the precious metal is down $40 in the last 3-days.

What’s the trade?

Looking at crude, as you move further out on the curve, the contracts are trading higher, explains Joe Terranova. I think the drop in the spot price has everything to do with China tightening.

In the space I’m watching Deere, Caterpillar and Bucyrus, adds Pete Najarian. When the market turns I think those names go higher.


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HIDE OUT IN TECH?

It was really a tough day for tech traders with the Nasdaq breaking down. By the close the index had experienced its biggest point drop since December 1 2008.

Of the top six market cap weighted stocks in the Nasdaq, four are now "technically" broken, below their 50 and 200 day moving averages

Technical breakdown? Below 50 & 200 Day

Microsoft
Google
Cisco
Oracle

What’s the tech trade?

I think more downside lies ahead, says Dan Niles of Alpha One Capital Partners. A lot of the names listed above are tethered to Europe. Unless you believe Europe will pull themselves out of this mess quickly, these stocks will likely struggle for quite some time.

What else does Dan Niles he have to say about the sector now? And where does he see opportunity?

Watch the video and find out!



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Trader disclosure: On May 19 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Jon Najarian owns (GS) puts; Jon Najarian owns (JPM) puts; Jon Najarian owns (XLF); Jon Najarian owns (SPY); Jon Najarian owns (NYX) and (CME); Jon Najarian owns (NYX) and (CME) puts; Jon Najarian owns seats on NYSE, CME & CBOE; Grasso Owns (BP), (NDAQ), (DYN), (LPX), (ASTM), (ABK), (BAC), (BGP), (C), (CVGI), (JPM), (PRST), (PFE), (BA), (T), (CSCO), (X); Najarian Owns (AMD) Calls; Najarian Owns (C) Calls; Najarian Owns (CAT) Call Spread; Najarian Owns (DELL) June Calls, Is Short (DELL) May Calls; Najarian Owns (HPQ), Is Short (HPQ) Calls; Najarian Owns (MS), Is Short (MS) Calls; Najarian Owns (MCD) Call Spread; Najarian Owns (NOVL) Calls; Finerman's Firm Is Short (IJR), (MDY), (IWM), (SPY); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leaps; Finerman Owns (BAC), (BAC) Preferred; Finerman Owns (GOOG); Finerman's Firm And Finerman Own (HPQ); Finerman's Firm Owns (JPM), (JPM) Calls; Finerman Owns (JPM); Finerman's Firm Owns (TJX); Finerman Owns (WFC) Preferred; Finerman's Firm Owns (YUM); Terranova Owns (PFE), (GLD); Cortes Is Long Euro; Cortes Is Long Crude Oil; Edwards owns (VXX)

For JoeTerranova
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 Dan Niles
Alpha One Capital Partners Owns (AAPL)
Alpha One Capital Partners Owns (BIDU)
Alpha One Capital Partners Owns (EBAY)
Alpha One Capital Partners Owns (GS)
Alpha One Capital Partners Owns (CREE)
Niles Invests In Alpha One Capital Partners

For Brian Stutland:
Stutland Equities Is A Market Maker In VIX
Stutland Equities Is A Market Maker In (SPY)
Stutland Holds A Seat On CBOE

For Peter Boockvar
Boockvar Owns Euros

For Patty Edwards

Edwards owns (VSS) for clients
Edwards owns (SPY) for clients
Edwards owns (QQQ) for clients
Edwards owns (MSFT) for clients
Edwards owns (GOOG) for clients
Edwards owns (CSCO) for clients
Edwards owns (ORCL) for clients
Edwards owns (CPB) for clients
Edwards owns (KO) for clients
Edwards owns (AAPL) for clients
Edwards owns (HPQ) for clients
Edwards owns (AAPL) for clients
Edwards owns Gold for clients
Edwards owns Platinum for clients

For Steve Grasso
Stuart Frankel And Its Partners Own (APC)
Stuart Frankel And Its Partners Own (AMR)
Stuart Frankel And Its Partners Own (BAX)
Stuart Frankel And Its Partners Own (CUBA)
Stuart Frankel And Its Partners Own (DNR)
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 (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 (TRV)
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)

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  Price   Change %Change
NASDAQ
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S&P 500
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C
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CAT
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CLX
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CPB
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CVS
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DE
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DIS
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GS
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HAL
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JPM MLP ETN
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MS
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V
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WAG
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SPDR FIN SEL
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  • Founder of EmergingMoney.com

  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

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