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Pros: Buy the Fear or Is This Sell-Off Different?

So much for the triple digit ‘debt deal’ relief rally that you’ve been waiting for. As far as we can tell its already come and gone.

The S&P spiked and theDow surged at the open due to optimism that lawmakers will finally stop bickering and compromise on a debt deal!

However, both the S&P and Dow pared those gains and then turned sharply negative - as investors turned attention to the latest economic data – and by all accounts it was lousy.

Here in the US the ISM manufacturing index showed new orders slipped to their lowest levels in 2 years. And overseas, that latest HSBC's China Purchasing Managers' Index fell below 50 in July for the first time in a year, leading to chatter that Beijing’s efforts to curtail inflation by slowing growth had hurt factories.

Nonetheless, over the past several weeks these kinds of events have ultimately been buying opportunities – with other catalysts such as earnings giving bulls new reason to run.

Should you buy the fear or is this sell-off different?

Instant Insights with the Fast Money traders

Trader Steve Grasso thinks this sell-off may be different. He’s concerned that the S&P significantly breached its 50-day moving average of 1284, intra-day. “I don’t like the magnitude of the intra-day violation,” he says.

Since June 16th the market has bounced off the 50-day but on Monday the S&P violated it to the downside. Now where the S&P closes becomes critically important.

”It’s time to reassess,” says Grasso. “It feels like we’re heading to flat on year which is 1257.”

Trader Patty Edwards is also growing more concerned. “This isn’t the time to be a raging bull,” she counsels. If you must play stocks she suggests looking at dividend payers.

Trader Stephen Weiss is extremely negative. He thinks the market action is an early sign that the economy is heading for a double dip. “There’s been a lot of negative signs globally,” he says. “Canada and Australia GDP have also been very disappointing,” he says. And with the latest jobs report hitting the Street on Friday, Weiss thinks the path of least resistance for stocks will be lower.

Only trader Zach Karabell is modestly optimistic. He suggests using the market weakness to establish long positions, “but not aggressively.” Karabell, who tends to have a longer time horizon that the other traders, does not think investors are facing a global meltdown. China, he says, remains a massively accelerating consumer story.

What do you think? We want to know!

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MEDICARE CUTS SLAM HEALTHCARE STOCKS

Meanwhile, health care landed on the radar after the government cut Medicare reimbursements to nursing facilities by 11% next year.

How should you play it?

All the Fast traders agree that health care as a sector is a place investors should avoid until the dust settles from the budget cuts.

”I think you’ll just get burned. This is early innings of a bad story,” says Zach Karabell. “I’d also stay away from all health care right now,” adds Steve Grasso.

However, that’s not to say there aren't individual plays. In the space I still like AllScripts which should benefit as the industry transforms from printed records to electronic records,” says Stephen Weiss.





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Trader disclosure: On Aug 1, 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 Grasso owns (AMD); Steve Grasso owns (ASTM); Steve Grasso owns (BA); Steve Grasso owns (BAC); Steve Grasso owns (C); Steve Grasso owns (D); Steve Grasso owns (JPM); Steve Grasso owns (LIT); Steve Grasso owns (LPX); Steve Grasso owns (LVS); Steve Grasso owns (MAR); Steve Grasso owns (MHY); Steve Grasso owns (NDAQ); Steve Grasso owns (PFE); Steve Grasso owns (PRST); Steve Grasso owns (XHB); Steve Grasso owns (XLB); Steve Grasso owns (XLI); Weiss Owns (TBT); Weiss Owns (JPM); Weiss Owns (QCOM); Weiss Owns (DVN); Weiss Owns (COP); Weiss Owns (KO); Weiss Owns (MDRX); Weiss Owns (SLV); Weiss Owns (VZ); Weiss Owns (NS); Weiss Owns (ETP); Weiss Owns (SDS); Weiss Owns (TWM); Weiss Is Short (X); Karabell owns (AAPL); Karabell owns (GS)

For Zach Karabell:
Rivertwice Capital is short (XLF)
Rivertwice Capital is short (SPY)
Rivertwice Capital owns (EXPE)

For Steve Grasso
Stuart Frankel & Co and it’s partners own (AAPL)
Stuart Frankel & Co and it’s partners own (CSCO)
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 (MET)
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 (RHT)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners own (UAL)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (YHOO)
Stuart Frankel & Co and it’s partners own (QQQQ)

For Patty Edwards
Edwards Owns (AMZN) For Clients
Edwards is short (AAPL) For Clients
Edwards Owns (COST) For Clients
Edwards Owns (GOOG) For Clients
Edwards Owns (SLV) For Clients
Edwards Owns (GLD) For Clients
Edwards Owns (ERF) For Clients
Edwards Owns (KMP) For Clients
Edwards Owns (AGNC) For Clients
Edwards is owns the Canadian Dollar

For Deborah Weinswig
Citigroup Global Markets Inc. and/or its affiliates has a significant financial interest in relation to CVS Caremark Corp, Home Depot Inc, JC Penney Co Inc, Kohl's Corp, Kroger Co, Lowe's Cos Inc, Nordstrom Inc, Safeway Inc, SUPERVALU INC, Target Corp, Wal-Mart Stores Inc, Costco Wholesale Corp. (For an explanation of the determination of significant financial interest, please refer to the policy for managing conflicts of interest which can be found at www.citigroupgeo.com.)






CNBC.com with wires.

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