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Halftime: Will Silver Panic Bleed Into Other Markets?

The S&P fell for the fourth straight session on Thursday with bulls sidelined by weakness in commodities.

Of all the down moves, the Fast Money traders were particularly focused on the price action in silver. The shiny metal plunged again on Thursday; it’s now heading for its biggest weekly loss since 1983.

In fact, silver is effectively in a bear market, now down more than 20 percent from its high, the conventional criteria for a bear market. Ironically, it was only last Thursday that silver had made its bull market high, trading near $50 an ounce.

But silver is hardly the only commodity that’s weak. Oil, gold , and materials also moved lower, a worrisome trend for bulls because commodities and related stocks had been market leaders.

Is the extreme sell-off in the silver market starting to spill into other areas ? How should you position?

Instant Insights with the Fast Money traders

Trader Steve Cortes describes the break in silver as “material” and suggests the reversal is quite serious. “It will have an impact on the whole universe of risk-taking,” he says. “It’s the first of the speculative trades to unwind and will probably pull other markets down with it.”

To support his thesis he explains that not only are commodities weak, but nations that are largely tethered to commodity prices such as Brazil are also trading poorly.

“I think the whole commodity story is starting to unwind, broadly. And that we’re in the early innings of the unwind,” he says. “We’re seeing the beginning of the commodity bubble’s pop.”

Trader Steve Grasso also expects weakness, though not quite to the same degree as Cortes. “The trend has reversed,” he says. “We’re looking at lower prices in the market.”

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Lind-Waldock market strategist Rich Ilczyszyn thinks the move in silver and commodities is all about the US dollar, which hit a plateau after comments from Jean Claude Trichet suggested the ECB was unlikely to raise rates again.

“The dollar is in play and that could mean more softness in commodities,” says Ilczyszyn.

Although she’s not nearly as bearish, trader Patty Edwards is also keeping an eye on the dollar. She thinks Friday’s jobs reports could be another catalyst that sends the dollar higher. That, in turn would be bearish for commodities.

Trader Guy Adami, who’s often bearish, is on the other side of the trade completely.

He says May 5th or Cinco de Mayo could be Cinco de Buy-o. In other words, he thinks Thursday could be a flush day and therefore an opportunity.

”Commodities take the stairs up and the elevators down,” he reminds. And in the case of silver we’re down, way down. “When it looks the scariest, that’s typically the best time to get in,” he says.

What do you think? We want to know!






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Trader disclosure: On May 5, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Cortes owns (SO); Cortes owns (EXC); Cortes owns (GS); Cortes is short (F); Cortes is short (AXL); Cortes is short Nasdaq futures; Cortes is short EEM vs. SPY; Cortes is short EUR/USD; Cortes is short EUR/CHF; Cortes owns (TGT); Cortes is short 5-Yr Treasury Notes; Grasso owns (AMD); Grasso owns (ASTM); Grasso owns (BA); Grasso owns (BAC); Grasso owns (C); Grasso owns (D); Grasso owns (HOV); Grasso owns (JPM); Grasso owns (LIT); Grasso owns (LPX); Grasso owns (MHY); Grasso owns (NDAQ); Grasso owns (PFE); Grasso owns (PRST); Adami owns (AGU); Adami owns (C); Adami owns (GS); Adami owns (INTC); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU)

For Rich Ilczyszyn
**No Disclosures

For Steve Grasso:
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 (HPQ)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MSFT)
Stuart Frankel & Co and it’s partners own (MU)
Stuart Frankel & Co and it’s partners own (NYX)
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 (SDS)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners are short (QQQQ)
Stuart Frankel & Co and it’s partners are short (AAPL)

For Patty Edwards
Edwards owns (AAPL) for clients
Edwards owns (CVX) for clients
Edwards owns (GLD) for clients
Edwards owns (MCD) for clients
Edwards owns (MSFT) for clients
Edwards owns (SLV) for clients
Edwards owns (SLW) for clients
Edwards owns (XOM) for clients
Edwards owns (SLV) for clients
Edwards owns (SPY) for clients
Edwards owns (QQQ) for clients
Edwards owns (AZO) for clients
Edwards owns (TGT) for clients
Edwards owns (JWN) for clients
Edwards owns (COST) for clients
Edwards owns (WFMI) for clients

Nicole Miller Regan
Piper Jaffray is a Market Maker in (BAGL), (BBRG), (BJRI), (CAKE), (MSSR), (PFCB), (PNRA), (RRGB), (RUTH), (SBUX), (SONC)

For Brian Marshall
**No Disclosures





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