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Pros: Dollar, Higher Rates & China To Harass Stocks?

There's no question that Wall Street is a tough place; are stocks about to get beaten up by a menacing trio?

We’re talking interest rates, the dollar and China.

Treasurys saw the worst 2 day sell-off since the Lehman bankruptcy with the 10-year yield now at the highest since June.

Meanwhile, the dollar rose on Wednesday and looked to sustain gains after the proposed extension of tax cuts raised growth expectations for the U.S. economy.

And Beijing’s attempts to contain growth landed front and center after both McDonald's and Home Depot cited China as a cause for weakness in their latest data.

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

Instant Insights with the Fast Money traders

Fast trader Steve Cortes thinks investors should take their cue from China. ”I think weakness in Home Depot and McDonald’s is emblematic of China’s weakness,” he says.

He feels that so much Western capital has been dedicated to China predicated on 9% or higher growth that a slowdown – even to 7% growth – will have a monumental impact.

And no place will that slowdown be felt more than commodities. “I’d be careful of Mosaic, UNP, and all companies highly tethered to China growth," he counsels.


Todd Gordon of Forex.com shares Cortes' concerns. “If you look at the chart of Shanghai A-shares overlaid ontop of the S&P 500 (to your left) – you can see the last two of the three major turning points were led by China,” he says.

But take a look at the very end of the chart. ”Right now China is sitting on lows while the S&P is on highs. Technically that’s a huge cause for concern.”

Guy Adami has his attention on the bond market; he says it's trying to tell investors to proceed with caution. “Typically the bond market leads and it’s putting out a warning sign," he explains. For whatever reason the equity markets aren’t listening.”

If you watch Fast Money regularly you know that Brian Kelly of Kanundrum put his bear suit in mothballs are few weeks back. And he remains optimistic.

He’s also looking at the bond market and the rising yields but he takes it as a signal that the economy is getting better. ”A little inflation is coming and currently yields are too low,” he says.

Joe Terranova shares Kelly’s bullish view. “This may just be a return to normal after yields were too depressed over the summer.” He also says the rise in yields has been orderly. “As long as the yield rises in an orderly fashion, I’m comfortable.”

*comments above were compiled from both Fast at 5 and the Halftime Report

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TOPPING THE TAPE: FREE MONEY FOR FINANCIALS?

Meanwhile financials were the best performing sector on Wednesday as investors bet the steeper yield curve would benefits banks.

What’s the trade?

Bank of America appears to be trading at levels where it’s failed, says Guy Adami. I’d be cautious. And broadly I think headline risk in the sector isn’t going anywhere.

If you’re looking for a bank trade look at Goldman and Morgan Stanley, says Pete Najarian.

I’d play banks with a long position in Citi with a $4.50 stop, says Joe Terranova.


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TOPPING THE TAPE: BUY TECH ON RECOVERY?

Tech shares also topped the tape, with the Nasdaq closing higher for the sixth straight session and the Semiconductor ETF right near its 52 week highs.

What’s the trade?

I’m seeing a lot of action in Microsoft , says Pete Najarian. The Feb 29 call buying suggests this stock could have more upside.

I’m looking at Cannon and Sony after Texas Instruments cited strength in Japan, says Simon Baker.

I’d think about scaling out of Texas Instruments and into Intel , says Guy Adami, but with the expectation that $22 is probably the top of Intel’s range.



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HOTTEST TRADE OF THE YEAR OVER?

Is it time to put down silver? With the commodity snapping a seven session winning streak, when should you take profits in the year's hottest trade?

What’s the trade?

Lately every dip in silver has been a buying opportunity but I’m not sure this one is, says Guy Adami. I think weakness in silver could endure for a few days more.

The potential for big movements in either direction scares me, says Karen Finerman. I wouldn’t play here.

Elsewhere in the space, if you’re in gold, I’d question remaining there, says Joe Terranova. I’d think about reallocating capital out of this precious metals and into either copper or energy or even the financials .

I’d be concerned about going long copper at these levels, counters Pete Najarian. Beijing is looking to cool China’s economy so I’m not sure copper has a lot more room to run.






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Trader disclosure: On December 8, 2010, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova Owns (C), (GS), (NKE), (OXY), (PEP), (PFE), (VRTS), (UPL); Terranova Owns (GLD) puts; Adami owns (AGU), (BTU), (NUE), (C), (GS), INTC), (MSFT); Adami’s wife works at Merck; Finerman owns (AAPL); Finerman owns (BAC); Finerman & Finerman’s Firm owns (JPM); Finerman’s firm owns (MCD); Finerman & Finerman’s Firm owns (MSFT); Finerman’s firm owns (OCR); Finerman’s firm owns (TJX); Finerman’s firm owns (YUM); 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 and Russell 2000 puts; Pete Najarian owns (C); Pete Najarian owns (MCD); Pete Najarian owns (MS); Pete Najarian owns (SMH); Pete Najarian owns (YHOO); Cortes Owns (TSN); Cortes Owns (TM); Cortes is short (XRT) vs. S&P 500; Cortes is short (LVS); Cortes is long USD vs. Mexican Peso; Cortes is short Corn; Cortes owns U.S. 2-Year and 30-Year Treasuries

For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (ALK)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EPR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (MGRC)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
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 (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DRYS)

For Simon Baker
Baker Ave. owns (DOV)
Baker Ave. owns (ASF)

For Mike Khouw
Cantor Fitzgerald makes a market in (JPM)

For Brian Kelly
Accounts Managed By Kanundrum Capital Own (DE) Call Spreads
Accounts Managed By Kanundrum Capital Own (DRYS) Calls
Accounts Managed By Kanundrum Capital Own (MON)
Accounts Managed By Kanundrum Capital Own (MCP)
Accounts Managed By Kanundrum Capital Own (TBT)
Accounts Managed By Kanundrum Capital Own (SPY) Put Spreads
Accounts Managed By Kanundrum Capital Own (GDXJ) straddles




CNBC.com and wires

Symbol
Price
 
Change
%Change
NASDAQ
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BAC
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C
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GS
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HD
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INTC
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MOS
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MS
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MSFT
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6758.T
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UNP
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SPDR NRG SEL
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SPDR FIN SEL
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MCD
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