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Halftime: With Market at Crossroads, Pros Watching These Signals

With the Dow dropping by triple digits, chatter on the floor Tuesday had everything to do with whether the sell-off was about to accelerate in a big way.

Negative sentiment gripped Wall Street after HP issued a disappointing outlook and the latest economic data was anything but encouraging.

U.S. housing starts and permits for future home construction fell in April. The report pointed to prolonged weakness in the housing sector.

Also, the Federal Reserve reported factory output slumped in April as an automobile part shortage hurt production.

"This shows that we are kind of losing momentum ... and it is certainly disturbing considering that we are nearing the end of QE2," says Jack Ablin, chief investment officer at Harris Private Bank in a Reuters interview.

How should you position now? What should you be watching?

Instant Insights with the Fast Money traders

With the market at a potential crossroads, trader Joe Terranova is very focused on the technicals on both the S&P and a chart of the 10-year Treasury.

On the S&P he’s watching the 50-day moving average of about 1319 and on the 10-year he's watching the 200-day which rests around 3.07%.

”We could get a break out in Treasurys or it could be resistance and send money rotating back into equities,” he says.

In other words, watch to see if the price of 10-year Treasurys goes much lower and drives the yield much higher. And also watch to see if the S&P falls much below 1319. If both of those things happen it could be a signal of a sharp correction ahead. On the other side of the coin, if the levels hold, it could be considered bullish.

Terranova thinks what ultimately happens at these key junctions will largely be determined by the dollar. And in the long-term he remains bearish on the greenback. “Fundamentally the odds are stacked against the dollar and long-term I think the dollar returns back lower,” he says.

Trader Steve Cortes also thinks the next big move in the market will be determined by the dollar. But he’s a big dollar bull and as a result he expects a sell-off, a sharp sell-off in stocks. “I think it hasn’t even gotten started,” he says.

Cortes believes QE2 and the resulting weak dollar was the primary catalyst behind the outperformance in energy and materials. And now that QE2 is winding down he thinks the dollar will march higher and the commodities trade will “retrace in violent fashion.”

Trader Brian Kelly is more optimistic. He points to China which he thinks is showing signs that suggest global growth is re-accelerating. In fact, he thinks the current sell-off presents buying opportunities.

As a ‘tell’ Kelly suggests watching the Aussie dollar, “especially the Aussie/yen cross. That leads the US stock market by hours to 2 days,” Kelly says.

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TOPPING THE TAPE: HOME DEPOT

Home Depot topped the tape on Tuesday after the company raised its full year forecast.

What’s the trade?

Brian Stutland of Stutland Equities says lower oil should benefit not only Home Depot but the entire consumer discretionary sector.

Looking at the broad retail space, Joe Terranova likes BJ’s. "I think it could be a takeover target," he says. And he likes Kohl’s , which he says should perform well in a slowing economy.

Trader Cortes is bullish on Target . "With the price of crude coming down, and Target around $50, I’d take a look."

Brian Kelly prefers playing retail from the high end, with Tiffany.

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WHO’S RIGHT ON GOLD?

13-F filings released earlier in the week revealed that a hedge fund Street Fight was in the making over gold .

Billionaire investor George Soros dumped nearly all of his holdings in the GLD while top hedgie John Paulson held onto his and even added positions in some gold miners.


SOROS DITCHES GOLD - CHANGE IN POSITION
SPDR Gold Trust: -98.95% To 49,400 Shares
NovaGold Resources -72.94% To 3,492,100 Shares
Kinross Gold -65.18% To 1,379,400 Shares

PAULSON STICKS WITH BULLION - CHANGE IN POSITION
SPDR Gold Trust: No Change
Barrick Gold +125% To 900,000 Shares
Gold Fields +8.31% To 26,050,000 Shares

What's the trade?

Brian Kelly sides with Paulson. "I think gold goes higher," he says.

Steve Cortes is on the other side. He's dollar constructive, which makes him bearish on the precious metals.

Joe Terranova suggests looking at copper. "Of all the metals, I’d put copper on the radar," he says. Terranova thinks it should be the first commodity to bottom when the sell-off is over.




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Trader disclosure: On May 17, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova Owns (OXY); Terranova Owns (XOM); Terranova Owns (KSS); Terranova Owns (BJ); Terranova Owns (DIS); Terranova Owns (TM); Terranova Owns (MCD); Terranova Owns (PEP); Terranova Owns (PFE); Terranova Owns (BAX); Terranova Owns (V); Terranova Owns (JPM); Terranova Owns (VRTS); Cortes Owns (SO); Cortes Owns (EXC); Cortes Owns (KFT); Cortes Owns (K); Cortes Owns (GS); Cortes Owns (MS); Cortes Owns (TGT); Cortes Is Short Nikkei; Cortes Is Short (EEM), Is Long S&P; Stutland Owns (GLD); Stutland Is Short (GOOG) Put Spread, Is Long (GOOG) Call; Stutland Owns (SLV) Put Spreads, Is Short (SLV) Calls, Owns (SLV); Stutland's Firm Makes Markets In SPX Options, Holds Hedged e-Mini And Options Position; Stutland's Firm Makes Markets In VIX Option And Holds Hedged VIX Futures And Options Position; Stutland Is Long Australian Foreign Debt Held In Australian Dollars

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)

For Brian Kelly
Accounts Managed By Brian Kelly Capital Are Long Australian Dollar
Accounts Managed By Brian Kelly Capital Own (TLT) Calls
Accounts Managed By Brian Kelly Capital Own (AGO)
Accounts Managed By Brian Kelly Capital Own (NLY)
Accounts Managed By Brian Kelly Capital Own (EBAY)
Accounts Managed By Brian Kelly Capital Own (SLV) Calls
Accounts Managed By Brian Kelly Capital Are Short Yen

For Jayson Noland
Robert W. Baird & Co. And/Or Affiliates Expect To Recieve/Seek Investment Banking Compensation From (HPQ), (DELL) In Next 3 Months
Robert W. Baird & Co. Is A Market Maker In (HPQ), (DELL)

For Jeff Degraaf
***No Disclosures




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