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Halftime: Hidden Message in Chip Sector?

Both the Dow and S&P struggled on Wednesday with IBM generating some tailwinds after a slew of Street upgrades.

However the Fast traders were much more focused on the darlings of the two year old bull market – chip stocks.

Semiconductor investors ran for the exits after Texas Instruments told analysts on a conference call that it was hurt in February due to weaker-than-expected demand for chips used in personal computers.

Adding to investor worries, Fiber optics company Finisar shocked the Street with dismal earnings, blaming a surprise inventory build due to slowing demand in China. And earlier in the week, rival Ciena surprised investors with a weak second-quarter outlook.

Is the chip sector trying to tell you something?

Instant Insights with the Fast Money traders

Brian Kelly thinks there is a message hidden in the flurry of news coming out of the chip sector; China is slowing down. And that’s a concern. “China had been the growth factor in the market,” he says. "Considering the sector has been up so much, investors will understandably take profits and the weak hands will sell immediately."

Steve Cortes shares BK’s concern although he’s looking at a different indicator. “The price action in chips is dreadful,” he says. “It’s troubling for semis and for the Nasdaq as a whole.” He adds that tech is not providing leadership. Considering semis were the runaway leader, the fact that stocks such as JDSU, Finisar and Qualcomm are all breaking down, this is bad news for tech.”

Patty Edwards didn’t draw quite the same conclusion. She's focussed on commentary out of Texas Instruments and what it suggests about the state of PC sales. Her takeaway is that PC sales are slowing although tablet sales are picking up. However, she’s not sure the strength in one area can off-set the weakness in the other area. “That’s the bigger issue here,” she says.

JJ Kinahan has Finisar on his radar; after a 30% sell-off it’s either a really great buying opportunity or a broken stock. “I’d look at an out of the money put spread ,” he says but not right away. “These aren’t usually one day events – I’d let events play out for a week or so. I’d expect a dead cat bounce and then a sell-off again, wait for that to happen first.”

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THE BULL DOUBLES

The traders often talk about the March 9th lows, of course referring to March 9, 2009. Two years later on March 9th2011, it seems like an appropriate time to take a look back. Following are the top performing sectors since that time.

Top Sectors Since March 2009
Financials 169.3%
Consumer Disc.145.1%
Industrials 141.3%
Materials 121.7%
Technology 112.7%

Should you keep riding or is it time to dismount?

Of all the sectors mentioned above it appears the Fast traders are most focused on financials right now.

Steve Cortes is not a fan. “I think banks are in trouble,” he says. “I’m short Citi which I think is the worst of the big banks.” Largely he's bearish because he expects the yield curve will start to come in.

Brian Kelly shares the skepticism: “I’m short the XLF and IXG .” He too expects the yield curve will come in.

JJ Kinahan has spotted intriguing options action in the KBE which he interprets as bearish. “Somebody bought the Sept 26-22 put spread – also a bet the financials will come in.”


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Trader disclosure: On Mar. 9, 2011, 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 (C). Steve Cortes is short (MOS). Steve Cortes is short Wheat. Steve Cortes is short Corn. Steve Cortes is long (SDY) vs. S&P short. Steve Cortes owns (EXC). Steve Cortes owns (CAG). Steve Cortes owns (K). Steve Cortes owns the U.S. Dollar. Steve Cortes owns U.K. Bonds. JJ Kinahan owns (SPY) options. JJ Kinahan is short (NFLX) options. JJ Kinahan owns (INTC) options. JJ Kinahan owns (F) and (F) options. JJ Kinahan owns (CSCO). JJ Kinahan owns (MSFT) options. JJ Kinahan owns (GE) and (GE) options. JJ Kinahan owns (MOS) and (MOS) options. JJ Kinahan owns (C) and (C) options.

Comcast Is The Parent Company Of CNBC
Comcast Is The Parent Company Of NBCUniversal
GE Owns 49% Of NBCUniversal
GE Owns 49% Of CNBC

BRIAN KELLY
Accounts Managed By Kanundrum Capital Are Long Oil
Accounts Managed By Kanundrum Capital Are Long Gold
Accounts Managed By Kanundrum Capital Are Long Silver
Accounts Managed By Kanundrum Capital Are Long Sugar
Accounts Managed By Kanundrum Capital Are Long U.S. Bonds
Accounts Managed By Kanundrum Capital Are Long The Canadian Dollar
Accounts Managed By Kanundrum Capital Own (FRO)
Accounts Managed By Kanundrum Capital Own (EBAY)
Accounts Managed By Kanundrum Capital Own (RTN)
Accounts Managed By Kanundrum Capital Own (TLT)
Accounts Managed By Kanundrum Capital Own (SGG)
Accounts Managed By Kanundrum Capital Are Short S&P Futures
Accounts Managed By Kanundrum Capital Are Short the U.S. Dollar
Accounts Managed By Kanundrum Capital Are Short (XRT)
Accounts Managed By Kanundrum Capital Are Short (XLF)
Accounts Managed By Kanundrum Capital Are Short (IXG)

PATTY EDWARDS
Edwards owns (SPY) for clients
Edwards owns (XLB) for clients
Edwards owns (GLD) for clients
Edwards owns (SLV) for clients
Edwards owns (AMZN) for clients
Edwards owns (V) for clients
Edwards owns (JNJ) for clients
Edwards owns (AAPL) for clients
Edwards owns (IBM) for clients
Edwards owns (MSFT) for clients
Edwards owns (QCOM) for clients
Edwards owns (GE) for clients
Edwards owns (TGT) for clients
Edwards owns (CME) for clients
Edwards owns (POT) for clients
Edwards owns (FXI) for clients

DENNIS GARTMAN
Funds Managed by Dennis Gartman are long the Canadian Dollar
Funds Managed by Dennis Gartman are long the Australian Dollar
Funds Managed by Dennis Gartman are long the Swiss Franc
Funds Managed by Dennis Gartman are long Gold
Funds Managed by Dennis Gartman are long Corn
Funds Managed by Dennis Gartman are long Soybeans
Funds Managed by Dennis Gartman are long Sugar
Funds Managed by Dennis Gartman are long Crude
Funds Managed by Dennis Gartman are long Nat Gas
Funds Managed by Dennis Gartman are short the Euro
Funds Managed by Dennis Gartman are short the British Pound Sterling
Funds Managed by Dennis Gartman are short The Yen

CNBC.com with wires.

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