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Halftime: Is Market Way Oversold?

Once again, technicals appear to be driving this rough and tumble market with the S&P falling below the level reached during the "flash crash" earlier in the session but then bouncing back and muscling its way into positive territory.

At Thursday's closing level, the S&P 500's 14-day Relative Strength Index had fallen below 30 for the first time since the benchmark hit 12-year lows in March 2009, indicating the index was oversold.

How should you be positioned now?

Instant Insights with the Fast Money traders

Friday's performance in the equity market gives investors a point of reference, explains Joe Terranova. Now, if you want to get long you have an idea where support may be, but if we take out 1050 it gets ugly.

I’ve noticed investors starting to take profits in bearish positions and roll into bullish positions, adds JJ Kinahan of TD Ameritrade. I’m seeing a big seller of the 1070 puts in the SPX and buying the 1100 June calls. That suggests bullishness.

But every time an investor buys the market it caves in on them, counters Steve Grasso of Stuart Frankel. We really need to see if the market holds or sells off in the afternoon. I’d take a wait and see approach. If the bull is back it won’t hurt you to miss one day of gains. I’m still largely negative on the market

And if you’re trading volatility, you have to be quick, adds Jeff Tomasulo of SMB. I already took profits in the Vix . With that said, I still believe we’re going to have extreme volatility in this market.

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IF WE BOUNCE, HOW HIGH?

According to Birinyi, the S&P tends to perform fairly well after it enters a 10% correction. On average, it sees gains of 5% after one month, 16% after 6 months, and 20% after 12 months.

Performance After Entering a 10% Correction

S&P 500

1-Month 6-Month 12-Months

AVERAGE 5.28% 16.83% 20.83%

Source: Birinyi

Fast Money EP John Melloy wrote about this trend extensively in his latest post. Click here to read Odds Favor Correction Over New Bear

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FINANCIALS LEAD MARKETS HIGHER

Financials topped the tape on Friday after the senate approved a financial regulation bill, giving the sector at least a bit of clarity on what lies ahead for them.

The Senate bill must now be merged with a measure approved in December by the House of Representatives. Only then could a final package go to Obama to be signed into law, something that analysts said may happen next month.

What’s the trade?

Buyers are coming into this space because they like that uncertainty is coming out of the sector, explains Steve Grasso of Stuart Frankel. I added to my position in Citigroup at $3.59, he reveals.

If you’re looking at Goldman I’d play it long, counsels Joe Terranova. I think the days to short Goldman are behind us.

Options activity in Bank of America suggests to me investors think regulation might not be as bad as feared, reveals JJ Kinahan.


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COMMODITIES/INDUSTRIALS COME ROARING BACK

Metal and ag names made a strong comeback on Friday, with steel names including US Steel and AK Steel leading the gains.

What’s the trade?

I think the appreciation of China’s currency is coming along with a depreciation of the US dollar , says Joe Terranova. I’d play it with a long position in Steel Dynamics as well as Peabody for coal exposure. Also, I’m a buyer of gold on its pullback.

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TECH COMES ROARING BACK...

Tech made a strong comeback on Friday with the big cap names all trading higher and semi's leading the gains.

What’s the tech trade?

Jon Najarian has spotted unusual options action in Ciena.

12,000 calls changed hands with the total ratio of calls to puts being about 10:1 in favor of calls, explains Najarian. The action suggests investors believe a catalyst could send the stock sharply higher.

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TRADE TO GO: BEST BUY

Joe Terranova suggests putting Best Buy on your radar.

It’s a great consumer play and as well as a play on Apple, he says. I think it could go to $50.

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CALL THE CLOSE

Joe Terranova: If you want to get long you have a point of reference, but if we take out 1050 it gets ugly.

Steve Grasso: Wait and let the market rally It won’t hurt you to miss one day of gains.

JJ Kinahan: I’m almost always a buyer on market expirations days.

Jeff Tomasulo: I’m sitting on my hands.


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Trader disclosure: On May 21, 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 (PFE), (BMO), (SWN), (XCO), (EMC), (FTO), (YHOO), (AXP), (BBY), (TER), (STLD), (THC), (BTU), (AAPL), (DIS), (CVS), (IPSU); Terranova owns (GLD) JUN $115 Calls; Terranova Owns (GLD) June Calls; Terranova Owns (OIH) June Calls; Terranova Owns (PFE); Terranova Owns (RSX); Kinahan owns (C), (BAC), (AKS), (MSFT); Kinahan is short (SPY); Tomasulo owns (VXX); Tomasulo owns VIX calls; Tomasulo owns gold spot futures; Tomasulo owns (VZ); Tomasulo owns (PCLN); Tomasulo owns (V) calls; Grasso Owns (ABK), (BP), (BAC), (BGP), (C), (DYN), (JPM), (LPX), (NDAQ), (DCPA), (ASTM), (PRST); Kelly Owns (CAT) Puts; Kelly Owns (EMN) Puts; Kelly Owns (EXPE) Puts; Kelly Owns (WYNN) Puts; Jon Najarian Owns (BAC), (BAC) Preferred; Jon Najarian Owns (BP); Jon Najarian Owns (C); Jon Najarian Owns (JPM), (JPM) Puts; Cortes Owns (GS); Cortes Is Long Crude Oil; Cortes Is Short U.S. Treasuries

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 Steve Grasso
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 (DHR)
Stuart Frankel And Its Partners Own (DYN)
Stuart Frankel And Its Partners Own (GERN)
Stuart Frankel And Its Partners Own (GS)
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 (SYMC)
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 Own (TBT)
Stuart Frankel And Its Partners Are Short (QQQQ)


For Brian Kelly
Kanundrum Capital Is Short Euro
Kanundrum Capital Is Short Yen
Kanundrum Capital Is Short (USO)
Kanundrum Capital Is Short (XLB)
Kanundrum Capital Is Short (XLF)
Kanundrum Capital Is Short (EXPE)
Kanundrum Capital Is Short (WYNN)
Kanundrum Capital Is Short (IOC)
Kanundrum Capital Is Short (SU)
Kanundrum Capital Is Short (CME)
Kanundrum Capital Is Short (STT)
Kanundrum Capital Is Short (XLF)
Kanundrum Capital Is Short (CAT)
Kanundrum Capital Is Short (AA)
Kanundrum Capital Is Short (DOW)
Kanundrum Capital Is Short (XLK)
Kanundrum Capital Is Short (EMN)
Kanundrum Capital Owns (GLD)
Kanundrum Capital Owns (TLT)
Kanundrum Capital Is Short (DAI)

For Doug Kass
Seabreeze Partners Management Owns (ETFC)
Seabreeze Partners Management Owns (MTG)
Seabreeze Partners Management Owns (C)

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