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Halftime: Have Bears Finally Prevailed?

Selling accelerated into the afternoon on Friday, with the S&P sharply lower on reports of another possible debt crisis – this time in Hungary.

Also the jobs report disappointed investors.

Although 431,000 jobs were created in May, nearly 90% of that total was due to temporary workers hired for the U.S. Census. Also, the overall number fell short of expectations.

The results intensified fears about the stability of the economic recovery.

Industrial and materials names experienced the heaviest declines with the euro breaking below 1.22 a key technical level.

How should you position yourself now?

Instant Insights with the Fast Money traders

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.

I agree that if you must play equities it’s about being defensive, says veteran trader Gary Kaminksy. And if you’re long equities I’d also be long puts for protections. The markets look challenged.

It seems to me the euro is leading the market, muses Todd Gordon of Forex.com. Even with the stock market rally on Thursday the euro performed poorly. That suggests underlying weakness. I think the path of least resistance for the euro continues to be lower. Now I’m watching 1.15 as the next important technical level.

In the wake of the market action I’m a seller of stocks and I’m watching gold, adds Jim Iurio of TJM. Up until a few months ago money managers had the euro as a tool to diversify risk but no longer. All of that money has to go somewhere and I don’t think it all goes into the US dollar. But I wouldn’t play the gold ETF or the spot price of gold, instead I’d play it long the miners such as ABX .

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RISK ON / RISK OFF

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.

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FINANCIALS BIG LOSERS ON THE DAY

Financials were among the day’s big losers with the XLF down sharply. Goldman Sachs however, was in the green around lunchtime.

What should you make of it?

It seems to me that every Friday investors bid Goldman higher on hopes there will be an SEC settlement over the week-end, speculates Gary Kaminksy.

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TOPPING THE TAPE: AOL

AOL was also among the few names in the green today.

While the company said it has kicked off talks with potential partner for a new search deal, market chatter suggested there may be more to it – that AOL was actually in talks for a buyout deal.

What must you know?

I think it’s unlikely in the near-term that AOL gets bought out, says Benchmark Co. analyst Clayton Moran on Fast Money. AOL was likely for sale before the spin-off and nothing happened and I’m convinced if AOL turns around their ad business there’s a lot of profit potential.

Maybe AOL isn’t a takeout play but as far as Moran is concerned it’s definitely a turnaround story.

"There are many elements in place for an advertising turnaround," he tells us. They have the right management in place. They have good assets and they have 100 million plus unique users.”

Moran raised his rating on AOL to Buy from Hold, while maintaining his $25 price target.

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CALL THE CLOSE

Joe Terranova: I’d be underweight now.

Gary Kaminsky: As long as Obama talks about the market and jobs I’d be long the Vix and defensive.

Todd Gordon: I’d put on an Australian dollar short because I think copper is going lower.

Jim Iuorio: I’m a seller. I’d sell stocks and buy gold.

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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); 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

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