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Halftime: Is 'This' the Start of Something More?

Stocks fell again on Thursday with a sell-off in the technology and materials sectors leading the market lower.

Perhaps most troublesome, upbeat economic data on jobs and housing couldn’t ignite any momentum among the bulls.

That seems to be an emerging pattern. One day ago Wall Street suffered its worst drop in nearly two months despite strong results from Apple and IBM .

As a result, investors are starting to worry that the sell-off may grow into a full blown correction.

"I do consider it to be the start of a something more," says Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in a Reuters interview. "We're looking for a 5 percent to 7 percent pullback range, and I think we started it yesterday."

What should you be watching? What’s the trade?

Instant Insights with the Fast Money traders

Guy Adami agrees that this may be the beginning of a bigger decline. He sees a serious of negative catalysts. “It started with Intel which released great earnings but couldn’t rally,” he says. “Same with Apple.” Also there was a Brazil rate hike and now China. (China's economy unexpectedly accelerated in the fourth quarter of 2010 despite a series of tightening measures, triggering speculation that Beijing would tighten further) “I think we’re going to take a pause,” he says.

Steve Grasso is keeping a close eye on key technical levels on the S&P. “1272 is a level to watch,” he says. “If it can’t hold, I think we dip to 1265 then 1257 – which is flat on year. Then the next stop is probably 1228.”

Steve Cortes is also quite bearish. As he’s said in the past, he's concerned about the divergence between Shanghai and the S&P.

“Our market has been closely correlated with China's, but recently the Shanghai has been breaking down on inflationary concerns and is now at the lowest levels in about 4 months.” He thinks either China is cheap or the S&P is ahead of itself and he leans toward the latter.

Jon Najarian is a tad more optimistic. He’s looking at action in the Vix which traded up to nearly 19. “It’s a big move, but it’s pulled back, he says.” (That's a somewhat bullish indicator.) And rather than interpret the spike as a sign of fear in the market he says, “I think investors are (using options) to take shots.”

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THE CANARY IN THE COAL MINE?

As we mentioned above, China's economy unexpectedly accelerated in the fourth quarter of 2010 despite a series of tightening measures.

According to the FT, for the whole year, consumer prices rose 3.3 per cent, above Beijing’s target of 3 per cent. Food prices, the main driver of inflation, rose 7.2 per cent for the year.

Is a hike in the cards?

I think many hikes have to be in the cards, says Steve Cortes. China is facing serious food inflation. Looking at the history of China instability is tethered to higher foods costs and Beijing knows that.

As a result, I’m cautious of China related resource plays such as BHP. These companies need China’s growth to sustain their own growth strategy. And the latest data may compel Beijing to curtail that growth, significantly.

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BITTER APPLE

The traders are closely watching the action in Apple, which has shed about 5% since Steve Jobs announced he was taking a medical leave.

What’s the Apple trade?

Over 100 million Apple shares traded over 2-days with a reversal earlier in the week, explains Guy Adami. I think Apple is setting up for a move down to $310. A stock that goes to an extreme on the upside typically goes down an extreme on the downside too.

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CLOUD STORM

Looking at another sector, investors slammed the high-flying cloud stocks after F5 Networks issued a disappointing outlook and missed on revenue.

Is the pullback an opportunity or a warning sign?

Although there may be some forth in the space, I also think we’re seeing opportunity in the sell-off, says Gleacher analyst Brian Marshall in a live interview on CNBC's Fast Money. Below $110 I think F5 is a value. The sell-off is just a bump in the road.

In case you’re wondering, Marshall has a $130 price target on F5 and raised his rating to ‘Buy’ from ‘Hold.’

Check out our entire conversation with Marshall in the video here.




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Trader disclosure: On Jan. 20, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Guy Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE) and (BTU). Steve Grasso owns (ASTM), (BA), (BAC), (BWC), (C), (CSCO), (JPM), (LIT), (LPX), (MHY), (NDAQ), (PFE), (PRST) and (S). Steve Cortes is short (XRT) vs S&P long. Steve Cortes is short (LVS). Steve Cortes owns (TSN). Steve Cortes owns (SVU). Steve Cortes owns (CLX). Steve Cortes is short Gold. Steve Cortes is long U.S. Treasuries. Jon Najarian owns (BBY), is short (BBY) calls. Jon Najarian owns (F), is short (F) calls. Jon Najarian owns (GM), is short (GM) calls. Jon Najarian owns (CSCO), is short (CSCO) calls. Jon Najarian owns (IBM), is short (IBM) calls. Jon Najarian owns (MS), is short (MS) calls. Jon Najarian owns (WMT), is short (WMT) calls. Jon Najarian owns (APC) call spreads. Jon Najarian owns (RAX), (RVBD), (JNPR) and (APKT).

GUY ADAMI
Adami's wife works for (MRK)

STEVE GRASSO
Stuart Frankel & Co and it’s partners own (AAPL)
Stuart Frankel & Co and it’s partners own (ABX)
Stuart Frankel & Co and it’s partners own (CSCO)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (NEM)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (S)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners own (UAL)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)
Stuart Frankel & Co and it’s partners are short (AAPL)

BRIAN MARSHALL
Marshall has no disclosures

MARK MAHANEY
Citigroup or an affiliate received compensation for products and services other than investment banking from (GOOG) in the past 12 months.
Citigroup Global Markets Inc. currently has, or had within the past 12 months, (GOOG) as a client, providing non-investment-banking services
Citigroup Global Markets Inc. currently has, or had within the past 12 months, (GOOG) as a client, and the services provided were non-investment-banking, nonsecurities-related
Citigroup Global Markets is a market maker in (GOOG)

FAST MONEY 360
Chris Whalen, Carter Worth, and Scott Nations have no disclosures on (BAC)


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