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Halftime: Ominous Parallel Emerging; Signals Decline?

Thursday, 24 Feb 2011 | 1:29 PM ET

The S&P fell for a third day on Thursday with investors again running for the exits, worried that higher oil would stall the recovery.

However if you’re only watching oil, the Fast Money traders think you may be missing something.

They’re concerned by the action in wheat . In the last 10 trading sessions wheat has lost almost 10% of its value.

And according to Bank of New York Mellon, in 2008 a sharp decline in the price of wheat was a leading indicator of greater problems to come.

”The parallels between now and the opening months of 2008 are really quite frightening,” says BNY's Head of Currency Strategy, Simon Derrick in a live interview on CNBC’s Fast Money.

“In 2008 wheat came off in February then developed and emerging markets stalled,” he explains. “And that’s exactly what we’re seeing now.”

As you likely remember at the same time oil continued higher for another 3 or 4 months. Then it not only stalled, crude prices tumbled sharply.

”Ultimately the wheat price move was a real early warning sign,” says Derrick.

And Derrick adds it's not just 2008. A similar pattern emerged in the 1970’s in which a turn in commodity prices was an early sign of trouble.

The Trade

If you agree that the action in wheat is a market ‘tell,’ BNY’s Simon Derrick says the trade is long US dollar. “If you remember back in 2008 there was a right time to buy the greenback," he says. Despite it all, when investors need a safe haven, it’s the buck.”

Fast trader Guy Adami shares Derrick’s concern about potential weakness in the weeks ahead. “1275 is an extraordinarily important level on the S&P”, he says. “We’ll see what happens if and when we get there, but I’m a skeptic.”

The usually bullish Jon Najarian also appears to be less bullish. “We’re not seeing a pullback of significance in the Vix ,” he says. That suggests investors are growing ever more worried.

Brian Kelly thinks the market’s next big moves is all about the price of oil and little else. “The key is whether crude sustains above $100 which I think it will,” he says.

Patty Edwards tells the desk with so much uncertainty; she’s sitting on her hands, “I’d make a shopping list, watch levels and pull the trigger when the time is right but I don’t think the time is right today.”

That's similar to something Doug Kass told us earlier in the week; that is, investors will need to be nimble and hop in and out of positions. According to Kass, "the smooth ride that we’ve had since late summer is in jeopardy. It will be a great year for fast money traders but a bad year for the buy and hold crowd."

Stocks Face Down $100 Oil
Discussing a "recovery" in the stock market as oil hovers $100, with the Fast Money crew.

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TICK BY TICK: TARGET
Speaking of individual names, the traders are closely watching the action in Target which experienced a big intra-day spike after the company posted a 10.5 percent increase in quarterly profit, helped by strong sales early in the holiday season and fewer write-offs of bad credit card debt as shoppers' finances continued to improve.

What should you male of it?

Patty Edwards is holding Target. "I think they’re doing all the right things and think it will do well over the long-term. But I also think investors can wait before they jump in."

Guy Adami agrees that valuations are compelling but adds, "you could have said that for a while now."


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Trader disclosure: On Feb. 24, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE) and (BTU); Adami's wife works for (MRK); Jon Najarian owns (CHK), is short (CHK) calls; Jon Najarian owns (CBOE), is short (CBOE) calls; Jon Najarian owns (CME), is short (CME) calls; Jon Najarian owns (NYX), is short (NYX) calls
Jon Najarian owns (BRCM), is short (BRCM) calls; Jon Najarian owns (NBR), is short (NBR) calls; Jon Najarian owns (BP), is short (BP) calls; Jon Najarian owns (HK), is short (HK) calls
Jon Najarian owns (DTV), is short (DTV) calls; Jon Najarian owns (BP), is short (BP) calls; Jon Najarian owns (KWK), is short (KWK) calls; Jon Najarian owns (HOG) puts

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For Patty Edwards
Edwards owns (SPY) for clients
Edwards owns (XLB) for clients
Edwards owns (GLD) for clients
Edwards owns (SLV) for clients
Edwards owns (PGM) for clients
Edwards owns (BA) for clients
Edwards owns (AMZN) for clients
Edwards owns (TTM) for clients
Edwards owns (V) for clients
Edwards owns (JNJ) for clients
Edwards owns (AAPL) for clients
Edwards owns (VZ) for clients
Edwards owns (MSFT) for clients
Edwards owns (C) for clients
Edwards owns (GE) for clients
Edwards owns (TGT) for clients
Edwards owns (CME) for clients
Edwards owns (FXI) for clients

For Brian Kelly
Accounts Managed By Kanundrum Capital are long oil futures
Accounts Managed By Kanundrum Capital are long T-Bond futures
Accounts Managed By Kanundrum Capital own (AGO)
Accounts Managed By Kanundrum Capital own (ATW)
Accounts Managed By Kanundrum Capital own (DRYS)
Accounts Managed By Kanundrum Capital own (SLV)
Accounts Managed By Kanundrum Capital own (IAU)
Accounts Managed By Kanundrum Capital own (FRO)
Accounts Managed By Kanundrum Capital own (MCP)
Accounts Managed By Kanundrum Capital own (PGH)
Accounts Managed By Kanundrum Capital own (PWE)
Accounts Managed By Kanundrum Capital own (TLT)
Accounts Managed By Kanundrum Capital are long the Euro
Accounts Managed By Kanundrum Capital are long the British Pound
Accounts Managed By Kanundrum Capital are short The Yen
Accounts Managed By Kanundrum Capital are short the US Dollar

For Simon Derrick
Derrick has no disclosures

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