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Capitulation Sell-Off Or Start Of Something Big?

Friday, 4 Jun 2010 | 5:46 PM ET

Bulls retired for week-end licking their wounds with Dow tumbling by triple digits again.

Investors ran for the exits after concerns that the latest jobs report wouldn’t live up to expectations proved to be well founded.

Although 431,000 jobs were created in May, most of those gains were due to temporary workers hired by the census. And to make matters worse the overall number fell short of Street expectations.

Meanwhile reports of another possible debt crisis – this time in Hungary added to the negative sentiment.

By the close the S&P 500 had fallen below 1,070, a level which had been considered support and just below the intra-day low the market reached during the "flash crash" on May 6 of 1065.

How much farther is the S&P going to fall?

Instant Insights with the Fast Money traders

The next key level to watch on the S&P is 1040, explains Guy Adami. If we break below that, we're likely at the start of something big. And the down whoosh could be as bad as the low 900’s.

The S&P 500 had been struggling with its 200-day moving average around 1105 and bulls were hoping the jobs reports would provide the catalyst for the market to break above that level, explains Joe Terranova. But it didn’t. I don’t see any other positive catalyst in the near-term. As a result, I think the trade is to get defensive with stocks like Disney, CVS and Best Buy.

In this kind of environment, I’m inclined to stay on the sidelines , says Karen Finerman. However, if I see value I’ll buy it. And right now there are a few select names I’m looking at including IBM, Hewlett Packard and Johnson & Johnson.

I’m watching the Vix, says Mike Khouw. The spike higher says investors are growing fearful as we approach the next earnings season.

What do you think? We want to know!


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CORRECTION CASUALTY: COMMODITIES

The Fast Money desk is closely watching the action in commodities and resource names as the risk trade comes off.

Oil was among the day’s big losers with metals such as copper also tumbling, however nat gas names traded higher; in the same direction as the spot price of nat gas.

What’s going on?

I’m hearing that hedge funds are rotating out of oil and the metals and into nat gas which has underperformed, explains Joe Terranova. I think there’s more bang for the buck in nat gas.

I agree with Joe, says Mike Khouw. I like the nat gas space and I’d play it with a Chesapeake.

I think nat gas is the only play in the space, especially if China is slowing their growth and perhaps even stockpiling, warns Guy Adami. It’s a very dangerous time to get long commodities broadly.

Word on the Street
The Fast Money traders take a look at today's top business stories.
Ear to the Wall
Insight on how investors can protect themselves now, with Jon Najarian, Optionmonster.com.

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CORRECTION CASUALTY: CONSUMER

Investors also dumped consumer shares in Friday’s sell-off with both the RTH and the XRT showing sharp declines.

Meanwhile, the Wall Street Journal reports Treasury Secretary Tim Geithner told his G20 counterparts that the world shouldn’t rely on the US consumer.

What’s the retail trade?

I know that the consumer is weak but I like retailers that have strong management teams that are badly beaten down, says Patty Edwards of Storehouse. JCrew falls into that category as well as Apple . But I wouldn’t go into Abercrombie or JC Penney .

If you’re bullish and think the sell-off is unjustified I think it’s okay to nibble on retail but if you’re bearish I’d be careful of the sector, adds Guy Adami.

In the space I own TJX, Best Buy , Target , and Walmart , says Karen Finerman. And I’m planning to revisit JCrew. It’s been too expensive for me, but I like the CEO’s 5-year outlook.


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WHY DOES THE BOTTOM FALL OUT IN THE FINAL HOUR?

We’ve noticed that on big market moving days the bottom seems to fall out in the final hour of trade. What’s going on?

Find out from Jon Najarian. Watch the video now!



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Trader disclosure: On June 4, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Gordon Is Short Australian Dollar; Terranova Owns (RIG), (RSX), (TER), (AXP), (BMO), (BBY), (DIS), (XCO), (IPSU), (SWN), (AAPL), (CVS), (IPI), (TEVA), (FXB), (GLD), (V); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Finerman Owns (BAC) Leaps; Finerman Owns (BBY); Finerman Owns (BP) Calls; Finerman Owns (HPQ); Finerman Owns (JPM) And (JPM) Calls; Finerman Owns (RIG) Calls; Finerman’s Firm Owns (AAPL); Finerman’s Firm Owns (BAC); Finerman’s Firm Owns (BBY); Finerman’s Firm Owns (HPQ); Finerman’s Firm Owns (JPM); Finerman’s Firm Owns (RIG) Calls; Iuorio Owns (GLD), (VNR), (C ); Iuorio Owns (ABX) Calls; Iuorio Is Long Put Vol In S&P Futures; Iuorio Owns (FXA) Calls; Iuorio Owns (FXC) Calls

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 Mike Khouw
Cantor Fitzgerald makes a market in (AA)
Cantor Fitzgerald makes a market in (AAI)
Cantor Fitzgerald makes a market in (AAPL)
Cantor Fitzgerald makes a market in (ABDE)
Cantor Fitzgerald makes a market in (ALK)
Cantor Fitzgerald makes a market in (AMD)
Cantor Fitzgerald makes a market in (AMGN)
Cantor Fitzgerald makes a market in (AMZN)
Cantor Fitzgerald makes a market in (AXP)
Cantor Fitzgerald makes a market in (BA)
Cantor Fitzgerald makes a market in (BAC)
Cantor Fitzgerald makes a market in (BRCM)
Cantor Fitzgerald makes a market in (C)
Cantor Fitzgerald makes a market in (CAL)
Cantor Fitzgerald makes a market in (CHK)
Cantor Fitzgerald makes a market in (CSCO)
Cantor Fitzgerald makes a market in (DELL)
Cantor Fitzgerald makes a market in (DPRT)
Cantor Fitzgerald makes a market in (EBAY)
Cantor Fitzgerald makes a market in (F)
Cantor Fitzgerald makes a market in (FCX)
Cantor Fitzgerald makes a market in (GE)
Cantor Fitzgerald makes a market in (GOOG)
Cantor Fitzgerald makes a market in (GS)
Cantor Fitzgerald makes a market in (INTC)
Cantor Fitzgerald makes a market in (JPM)
Cantor Fitzgerald makes a market in (LCC)
Cantor Fitzgerald makes a market in (LM)
Cantor Fitzgerald makes a market in (LUV)
Cantor Fitzgerald makes a market in (MA)
Cantor Fitzgerald makes a market in (MS)
Cantor Fitzgerald makes a market in (MSFT)
Cantor Fitzgerald makes a market in (NILE)
Cantor Fitzgerald makes a market in (NTAP)
Cantor Fitzgerald makes a market in (NVDA)
Cantor Fitzgerald makes a market in (ORCL)
Cantor Fitzgerald makes a market in (RIMM)
Cantor Fitzgerald makes a market in (SNDA)
Cantor Fitzgerald makes a market in (SNDK)
Cantor Fitzgerald makes a market in (T)
Cantor Fitzgerald makes a market in (TXN)
Cantor Fitzgerald makes a market in (UAUA)
Cantor Fitzgerald makes a market in (V)
Cantor Fitzgerald makes a market in (YHOO)
Cantor Fitzgerald makes a market in (XLF)

For Brian Kelly
Kanundrum Capital Owns (IBM)
Kanundrum Capital Owns (XLI)
Kanundrum Capital Owns (ELK)
Kanundrum Capital Is Short (GS)
Kanundrum Capital Is Short (CME)
Kanundrum Capital Is Short (FCX)


CNBC.com with wires

  Price   Change %Change
DJIA
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S&P 500
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ANF
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BBBY
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CHK
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CVS
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DIS
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HPQ
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IBM
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JCP
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JNJ
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TGT
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TJX
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VIX
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WMT
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SPDR CD SEL
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SPDR SPRET
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AAPL
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MV RETAIL
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  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

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