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Overseas Turmoil To Cripple Commodities, Markets?

Tuesday, 23 Nov 2010 | 1:25 PM ET

The potential of a perfect storm sent investors running for safety on Tuesday with European debt concerns, weak economic data and aggression out of North Korea weighing on both the Dow and S&P like a ball and chain.

Of all the headwinds, the sudden and unexpected violence between North and South Korea was perhaps most worrisome; it triggered a knee-jerk flight to safety with gold and the US dollar both rising sharply.

Developments may be particularly troublesome for the S&P, which has marched higher since August despite weakness in financials.

Some investors now fear overseas turmoil could be a proverbial punch to the gut, a blow from which struggling bulls may not easily recover.

Their fear is that the uncertainty will generate ongoing dollar strength. In turn, a stronger dollar could derail the commodities rally.

”And the stock market can’t rally without the financials and the resource names,” says Steve Grasso.

How should you position now?

Fast Money Midday Market Check
The "Fast Money" traders share their market insight and midday trading advice.

Instant Insights with the Fast Money traders

I really think the downside in commodities is limited, says Joe Terranova. As far as I can tell demand is still there and a lot of longs have left the trade already. If you’re worried go out and buy protection. But from what I can tell demand remains for commodities whether its oil , gold or copper. The Commitment of Traders report supports that. I wouldn't leave the space.

What matters most about the broad market is corporate earnings and we've just seen they’re strong, Terranova adds. Into the end of the year, I expect the market to trade sideways, but any correction should be shallow.

The international scene reminds me there’s a great deal of risk in the world, counters Steve Cortes. Whether it’s Korea or China tightening or Europe’s debt woes, I think there’s a good chance we see money managers race for the exits and cash out winning trades before year’s end. That would take the S&P lower.

Also, China’s stock market is trading terribly, adds Cortes. I take it as a sign that the tightening is having real impact.

Developments remind me why I’m bullish gold, adds Simon Baker I’m a buyer on any pullback. And I’m also positive on defense stocks such as Northrop Gruman and General Dynamics , says Simon Baker

For me the big overseas issue is whether the Europe’s financial woes spread to Spain, adds Brian Kelly. If Spain comes into play that’s a problem. And as for China, I think the sell-off is overdone. Around these levels the FXI is a buy.

I was on the ground in South Korea a few weeks ago and I found that the world tends to overreact to these kinds of actions, says David Riedel of Riedel Research. I think it’s saber ratting out of North Korea – nothing more. I’d be a buyer of Samsung and LG which sold off sharply on these developments. I’d use the pullback as my entry point.

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HONEYWELL UPGRADE

The traders are closely watching the action in Honeywell after Cowen upgraded the stock to 'Outperform' from 'Neutral' citing improved visibility of multiyear earnings strength.

How should you play it?

I like Honeywell, says Joe Terranova. The only concern I have with this stock is the ISM number coming out next week. If it’s under 50 it could present a challenge.


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Trader disclosure: On November 23, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Steve Cortes is short (UNP), (CSX), Nasdaq Futures, (AAPL) and corn. Steve Cortes is long 2 Year Notes, U.S. Dollar vs. Mexican Peso, Australian Dollar, Canadian Dollar. Steve Cortes Owns (TSN) and (K).

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For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CMS)
Virtus Investment Partners own more than 1% of (CSC)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (FCFS)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLF)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (SOA)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (WMB)
Virtus Investment Partners own more than 1% of (YDNT)
Virtus Investment Partners own more than 1% of (DRYS)

For Brian Kelly
Accounts Managed By Kanundrum Capital Own (GLD)
Accounts Managed By Kanundrum Capital Own (GDXJ)
Accounts Managed By Kanundrum Capital Own (SLV)
Accounts Managed By Kanundrum Capital Own (RTH)
Accounts Managed By Kanundrum Capital Own (XLK)
Accounts Managed By Kanundrum Capital Own (SMH)
Accounts Managed By Kanundrum Capital Own (JJG)

For Simon Baker
Baker And Baker Avenue Asset Management Own (ODP)
Baker And Baker Avenue Asset Management Own (C)
Baker And Baker Avenue Asset Management Own (CTSH)
Baker And Baker Avenue Asset Management Own (IBM)
Baker And Baker Avenue Asset Management Own (GLD)
Baker And Baker Avenue Asset Management Own (GDX)
Baker And Baker Avenue Asset Management Own (PHYS)
Baker And Baker Avenue Asset Management Own (SLV)
Baker And Baker Avenue Asset Management Own (URBN)
Baker And Baker Avenue Asset Management Own (ANN)

For David Riedel
***No Disclosures



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