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Market Telling You To Get Defensive Or To Get Long?

An unexpected rise in jobless claims and a sobering profit report from Cisco sent investors running for the exits Thursday.

The Dow, S&P, and Nasdaq all closed lower for the third consecutive day and have now all erased gains for the year.

In fact, over the past three days the Dow is down more than 400 points.

How should you position now?

Instant Insight with the Fast Money traders

I’m seeing a dramatic change in the market place and I’d get a little more defensive, says Joe Terranova. I’d look at gold , utilities as well as health care companies such as Baxter .

I thought the market action was fairly good, counters Karen Finerman. The bad economic data combined with the Cisco outlook was more than enough reason for the market to roll over, but it didn’t.

However, if you want some defensive suggestions I like Becton Dickinson, as well as Carefusion, Finerman adds.

I’m seeing signs that may well be positive, explains Guy Adami on theHalftime Report. For example the S&P bounced off its lows nicely, the Vix has collapsed -- meaning fear has come out of the market -- and Intel may have found a bottom around $19. If you’re bullish and think the tape will hold, I’d get long Caterpillar at current levels, he counsels.

I’m watching 1088 on the S&P, the 50-day moving average, adds Steve Grasso. The market dipped below that level which is a negative signal and could exacerbate a sell off. However, the market must close below that level for a couple days before I’d throw out my long positions.

It’s also worth noting that Goldman upgraded Simon Property Groupand Blackstone, adds Jon Najarian. I don’t think they would have done that if they were worried about deflation. Both companies are now on the Conviction Buy list - that may be telling.

Also copper and aluminum are trading well amid a poor tape, adds Steve Cortes. And that may be telling. I agree that deflation is probably not in the cards.

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GOLD RISES THE MOST IN 8 WEEKS

Gold surged on Thursday after Goldman Sachs forecast significantly higher prices over the next 6 months – the firm’s price target is now $1300 an ounce.

What’s the trade?

Don’t forget that gold takes the stairs higher and the elevator down, warns Guy Adami. Clearly the trade right now is long gold but it unravels badly.

I think $1225 is a key level, says Joe Terranova. If gold settles above that level I'd expect it to take out the highs for the year and go to $1300.

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SHAREHOLDERS HIT BACK AT H-P BOARD FOR HURD RESIGNATION

What could be the first of many lawsuits was filed on Thursday against the board of HP .

According to the Wall Street Journal the suit accuses H-P board of violating its corporate governance guidelines by failing to inform shareholders of the investigation into CEO Mark Hurd.

These developments come on the heels of a scathing editorial written by Oracle CEO Larry Ellison and published in the New York Times on August 9th.
“The H.P. board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago,” wrote Ellison

”In losing Mark Hurd, the H.P board failed to act in the best interest of H.P.’s employees, shareholders, customers & partners.”

Should the board have informed shareholders that they hired an investigator?

* Hear from the Fast Money traders about this issue. Watch the video now!

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ELSEWHERE IN TECH

Meanwhile, tech traded lower broadly after Cisco CEO John Chambers noted "unusual uncertainty" about the economy and the computer networking giant forecast revenues below estimates.

What’s the trade?

After the sell-off, I think Cisco is attractive as a longer term trade, adds Patty Edwards. I picked some up Thursday morning.

Cisco made a 52-week low of $20.68 back in August 2009, adds Guy Adami. We may be looking at double bottom. I'd own the stock with a stop out around $20.50. Also I’d look at Ntap, he says. This stock has pulled back enough that I think it’s worth a look.

Play the space carefully, adds Joe Terranova. Results from Cisco as well as IBM suggest to me that corporate spending on IT is slowing significantly.

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COMMODITY COMEBACK LED BY GRAINS

Grain stocks topped the tape on Thursday after the USDA said wheat supplies world-wide would be tighter than expected this year largely because of the devastating drought in Russia.

Thebearish wheat forecast overshadowed the department's bullish forecast for other soft commodities including corn and soybeans . In fact, the USDA said both harvests may be the largest on record.

How should you trade?

I'd play it with the ag stocks, says Joe Terranova. I like Potash .

In case you're interested following are the correlations between crop prices and fertilizer names as compiled by RBC.

Crop Correlations

Wheat Intrepid Potash (IPI) ,Viterra (VT)
Corn Potash Corp. (POT), Mosaic (MOS)
Soybean Potash Corp. (POT), CF Industries (CF)
Source: RBC Capital Markets


And if you trade currencies, Canada’s dollar and the Norway’s krona are the most correlated to wheat, adds host Melissa Lee.




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Trader disclosure: On Aug 12, 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 (AKAM), (BAX), (FCX), (MOS), (OXY), (PFE), (POT), (SU), (XBI), (GLD); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Finerman owns (AAPL); Finerman owns (GOOG); Finerman’s firm owns (HPQ); Finerman and Finerman’s Firm owns (BAC); Finerman and Finerman’s Firm owns (JPM); Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman’s firm owns S&P 500 puts; Finerman’s firm owns Russsel 2000 puts; Jon Najarian owns (CSCO) short calls; Jon Najarian owns (VIX) Call spread; Jon Najarian is short (SQQQ)

For Patty Edwards
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Edwards owns gold for clients
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Edwards owns the S&P500 for clients

Anthony Scaramucci
SkyBridge Capital owns (LO)

Stephen Weiss
Weiss owns (MRK)
Weiss owns (VZ)

David Riedel
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Colin Gillis
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Brian Stutland
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