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Will Italy Break the Backs of US Bulls?

Remember when chatter on the floor suggested the Street was growing optimistic about – well, everything. That was sooo yesterday. No we mean that literally.It was yesterday.

The mood in the market seems to change with the wind – or at least change with the headlines out of Europe.

And on Wednesday the headlines generated not only chatter about how low the S&P could go – but if Italy had broken the back of the bulls, entirely.

Specifically, Italian bond yields shot up to 7.502 percent, a new high since the euro was introduced in 1999, as investors unloaded the debt after a clearing house increased margin calls.

That’s a problem because Portugal and Ireland were forced to seek bailouts when their borrowing costs reached similar levels

"We just added another layer of uncertainty. The issue with Italy brings the region closer to a broader negative scenario and raises more concerns about a financial crisis," says Bob Pavlik, the chief market strategist at Banyan Partners in a Reuters interview.

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”It’s hard exaggerate just how important these developments are,” says trader Steve Cortes. "This looks like the first inning of a long and ugly game for international markets."

“The spike in bond yields is concerning and serious,” Brian Kelly concurs. "I don't think the ECB is going to buy their bonds."

Although the ripple is complex, largely concern is that the European financial system will start to freeze – with financial firms afraid of contagion. And the resulting contraction, could trigger a serious economic downturn.

”I’m short the euro, Deutsche Bank and Santander,” says Steve Cortes. “This isn’t over.”

"The pattern in the US has been sell in the morning and buy in the afternoon," adds Brian Kelly, but if that doesn’t happen on Wednesday, get short, very short."

In other words, this could be a game changer.

That's not to say there aren't any bulls left in the market - there are - plenty in fact. Pete Najarian is among them - he just doesn't buy all the negativity. "Considering the news, the market could be down, a lot more severely."



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Trader disclosure: On November 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; Najarian is long AAPL; Najarian is long AKS calls; Najarian is long C; Najarian is long WFC calls; Najarian is long MS; Najarian is long INTC; Najarian is long YHOO; Najarian is long X calls; Najarian is long HPQ; Najarian is long MSFT; Cortes is long SO; Cortes is long WMT; Cortes is long DNKN; Cortes is long Treasuries; Cortes is short AAPL; Cortes is short XRT; Cortes is short STD; Cortes is short DB; Cortes is short EURO; Cortes is short GOLD

For Brian Kelly
Shelter Harbor Capital is long oil
Shelter Harbor Capital is long TLT
Shelter Harbor Capital is long German bunds
Shelter Harbor Capital is long JJG
Shelter Harbor Capital is long MOO
Shelter Harbor Capital is long VLO
Shelter Harbor Capital is short Eurostoxx futures
Shelter Harbor Capital is short Copper
Shelter Harbor Capital is short CAD

For Peter Misek
Jefferies & Company, Inc makes a market in the securities or ADRs of Apple Inc.

For Bill Chappell
The following companies are clients of SunTrust Robinson Humphrey, Inc. and the firm has received or is entitled to receive compensation for investment banking services involving their securities within the last 12 months: Green Mountain Coffee Roasters, Inc. The following companies are clients of SunTrust Robinson Humphrey, Inc. and the firm has received compensation for non-investment banking services within the last 12 months: Green Mountain Coffee Roasters, Inc. An affiliate of SunTrust Robinson Humphrey, Inc. has received compensation for products or services other than investment banking services from the following companies within the last 12 months: Green Mountain Coffee Roasters, Inc.

For Nikos Theodosopoulous
1. The analyst covering this company, a member of his or her team, or one of their household members has ownership position in: Alcatel-Lucent, Cisco Systems
2. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of the following companies' common equity securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end): Cisco Systems
3. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Alcatel-Lucent.
4. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Cisco Systems Inc.
5. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Juniper Networks Inc.
6. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided.: Cisco Systems
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9. Within the past 12 months, UBS Securities LLC has received compensation from this company/entity: Alcatel-Lucent, Cisco Systems, Riverbed Technology

For Michelle Clark
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Michelle Clark.
Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Kohl's, Nordstrom. Within the last 12 months, Morgan Stanley has received compensation for investment banking services from J.C. Penney Co., Kohl's, Macy's Inc., Nordstrom, Saks Inc.. In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Kohl's, Nordstrom, Saks Inc.. Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from J.C. Penney Co., Kohl's, Macy's Inc., Nordstrom, Saks Inc.. Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company: J.C. Penney Co., Kohl's, Macy's Inc., Nordstrom, Saks Inc.. Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: J.C. Penney Co., Kohl's, Macy's Inc., Nordstrom, Saks Inc.. An employee, director or consultant of Morgan Stanley is a director of Macy's Inc.. This person is not a research analyst or a member of a research analyst's household. Morgan Stanley & Co. LLC makes a market in the securities of J.C. Penney Co., Kohl's, Macy's Inc., Nordstrom, Saks Inc.. The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making, providing liquidity and specialized trading, risk arbitrage and other proprietary trading, fund management, commercial banking, extension of credit, investment services and investment banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report. Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.



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