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Is Second Commodities Sell-Off a Big Bear Signal?

Nervous was the only way to describe the mood on Wall Street Wednesday, after a rout in commodities sent investors running for cover. That’s the second time a commodities sell-off has rocked markets in the space of only a week.

Declines in energy commanded the Street’s full attention, with crude sliding to less than $100 a barrel. Meanwhile, the bearish sentiment was so intense in gasoline futures they had to be halted on the Nymex for a short time.

But other commodities tumbled too. Silver traded sharply lower as did copper sending natural resource related stocks such as Freeport McMoRan on a roller coaster-style drop.

The move is particularly disconcerting because energy and materials had been the top performing sectors over the past two quarters when stocks rallied.

If gains are not sustainable in materials and energy, and other sectors such as financials face systemic challenges, can the stock market possibly advance?

Instant Insights with the Fast Money traders

Tim Seymour is disturbed by the market action and is skeptical that commodities rally can continue in the near-term. Seymour thinks the main catalyst here is the US dollar, which he expects to move higher due to ongoing financial woes in Europe as well as the end of QE2.

With the market taking its cue from commodities lately, “we could be setting up for the market to go much lower this week,” he says.

Guy Adami shares the concern and says “the S&P is starting to scare me.” He reminds the desk that 1350 had been a level of resistance – then support. With the S&P breaking below that key technical level, it suggests 1350 could again be resistance. To confirm his bearish outlook, he points to the action in two bellwethers, Goldman and Freeport. “Since January both have traded poorly,” he says.

Pete Najarian is on the other side of the trade. He’s impressed the market didn’t fall more considering the sharp pullback in commodities. “Valuations are what investors care about,” he says. “That’s been the backbone of the market and they’re holding up. I’m not negative.”

Joe Terranova sides with Najarian. “I wouldn’t take it all off the table. Occidental and Apache are still worth owning,” he says.

What do you think? We want to know!

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Trader disclosure: On May 11, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian owns (PFE); Pete Najarian owns (MRK); Pete Najarian owns (AAPL); Pete Najarian owns (TCK); Pete Najarian owns (AKAM); Pete Najarian owns (C); Pete Najarian owns (HPQ); Pete Najarian owns (TEVA); Pete Najarian owns (MS); Pete Najarian owns (RSX); Pete Najarian owns (GE); Pete Najarian owns (MSFT); Pete Najarian owns (YHOO); Pete Najarian owns (VLO); Pete Najarian owns (TER); Pete Najarian is long (RIMM) calls; Pete Najarian is long (AVL) calls; Pete Najarian is long (NTAP) calls; Pete Najarian is long (XLF) calls; Pete Najarian is long (PMCS) calls; Pete Najarian is long (CVS) calls; Pete Najarian is long (XL) calls; Pete Najarian is long (BSX) calls; Pete Najarian is long (HBC) calls; Pete Najarian is long (EWZ) calls; Pete Najarian is long (XLI) calls; Pete Najarian is long (FCX) calls; Finerman owns (M); Finerman owns (CMI); Finerman owns (LEA); Finerman owns (MSFT); Finerman is short SPY; Finerman is short (MDY); Finerman is short (IWM); Finerman is Long S&P 500 Puts; Finerman is Long Russell 2000 Puts; Terranova owns (VRTS); Terranova owns (AAPL); Terranova owns (JPM); Terranova owns (V); Terranova owns (BX); Terranova owns (UPL); Terranova owns (BAX); Terranova owns (PFE); Terranova owns (PEP); Terranova owns (MCD); Terranova owns (TM); Terranova owns (DIS); Terranova owns (BJ); Terranova owns (APA); Terranova owns (OXY); Terranova owns (XOM); Adami owns (AGU); Adami owns (C); Adami owns (GS); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU)

For Brian Kelly
Accounts Managed By Brian Kelly Capital are long Australian dollar
Accounts Managed By Brian Kelly Capital are long Mexican peso
Accounts Managed By Brian Kelly Capital own (EBAY)
Accounts Managed By Brian Kelly Capital own (AGO)
Accounts Managed By Brian Kelly Capital own (DIA)
Accounts Managed By Brian Kelly Capital own (SLV)
Accounts Managed By Brian Kelly Capital own (SLV) calls
Accounts Managed By Brian Kelly Capital own (MCP) calls

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 (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 (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 (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 (XLF)
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 DOMINO'S PIZZA UK & URL PLC
Virtus Investment Partners Owns More Than 1% Of (DRYS)

Dan Niles
Niles and Alpha One own (AUO), (PAY), (NXPI)

Mike Khouw
**No Disclosures



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FCX
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GS
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OXY
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SPDR MAT SEL
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SPDR NRG SEL
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SPDR FIN SEL
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