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Halftime: Is China About To Drag Down S&P?

Investors mostly stayed on the sidelines Wednesday, unwilling to place big bets until things shake-out overseas.

It’s been largely reported that the market is on hold due to the resurgent debt crisis in Europe, but the Fast traders believe the Street is much more concerned about something else.

“The fear in the market has everything to do with China,” reveals Steve Cortes.

The Shanghai Composite ended at a fresh one-month low Wednesday, for the second consecutive session, on continued concerns about further tightening measures.

As you may remember, earlier in the week China announced intentions to stabilize food inflation -- they also talked about a crackdown on commodity speculation. The news sent commodities tumbling.

How should you position now? What should you be watching?

Instant Insights with the Fast Money traders

The American market is very reminiscent of April when China stocks got hit hard and for a while the S&P was able to shrug it off, says Steve Cortes. But in May we saw the S&P tumble. I think we’re setting up for a similar scenario now.

Looking at the bearish action in commodities, in my view the market has tipped its hand and showed us that gains in commodities were triggered by a bubble, Cortes adds. It was not about real demand. And it’s not just in the metals market – it’s happening in grains. Over two of the last 4 sessions soybeans and corn have both hit limit down. We’re not seeing orderly profit taking, it’s violent profit taking. I think it has all the indications of a lasting top in commodities.

To say the top is in – in all commodities is a little hasty, counters Rich Ilczyszyn of Lind-Waldock. To think that the whole emerging market sector is done and we’re not going to see any growth – I wouldn't say that.

I think weakness in commodities is all about dollar strength. I’m watching the dollar index closely, he adds. A key level is 78.80, the 50-day moving average, If the dollar closes below that level I’d bet commodities go back up. I don’t think the top is in by any means.

Shanghai and copper tend to be tightly correlated, adds Todd Gordon. The action in Shanghai suggests that copper may be about 20% overvalued.

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TECHNOLOGY

The traders are also keeping a close eye on the Nasdaq, which was the best major market index.

What’s the tech trade?

In the space I’m watching Qualcomm, says Pete Najarian. It traded sharply lower and is now back to the January high. Options action suggests investors think it could go higher still. I take it as a sign of enthusiasm for the sector.

I’m short the Nasdaq and would add to those shorts if Apple breaks below $300, says Steve Cortes.

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TARGET CARDS

Target topped the tape Wednesday, after beating on earnings and giving the best same store sales forecast in 3 years, helped by its credit card business and higher margin sales.

What’s the takeaway?

Those cards are geared to Target’s higher end customers, explains Patty Edwards. The high end continues to due better. It bodes poorly for Walmart .




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Trader disclosure: On November 17, 2010, the day this video was recorded, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian owns (F) bonds. Pete Najarian owns (CNI) and (MRVL). Pete Najarian owns (WLT) calls. Pete Najarian owns (MEE) calls. Pete Najarian owns (GDXJ) and call spreads. Steve Cortes is short the Nasdaq 100. Steve Cortes is short (FXI). Steve Cortes is short (AAPL). Steve Cortes is long (GOOG). Steve Cortes is long the U.S. Dollar. Steve Cortes is short the Mexican Peso. Steve Cortes is short the Canadian Dollar. Steve Cortes is short the Korean Won. Steve Cortes is short Corn. Steve Cortes is short Crude Oil.

TODD GORDON
Funds managed by Gordon are short Euro against the British Pound

PATTY EDWARDS
Edwards owns (AAPL) for clients
Edwards owns (COST) for clients
Edwards owns (AZO) for clients
Edwards owns (TAL) for clients
Edwards owns (BRKB) for clients
Edwards owns (F) for clients
Edwards owns (TSLA) for clients
Edwards owns (TTM) for clients
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RICH ILCYSZYN
***No Disclosures***

PAUL FREMONT
Jefferies makes a market in (DYN)

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