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After Major Breakdown, Don't Hold Commodities Long-Term


The Fast Money pros always watch the action in commodities quite carefully.  And lately the entire space has been a mess.

On Wednesday, gold cracked its 200-day for the first time since January 2009. Brent broke below its 300-day moving average of $107.08 and hit a session low of $104.36, its lowest level since Oct. 6.

U.S. crude dropped below its 200-day moving average of $95.98 and settled at its lowest since November 4.

And the weakness wasn’t limited to gold and oil it extended to the grain market as well. Corn traded near its lows for the year. So did other softs.

All told, the action in commodities didn’t bode well for bulls. What should you make of the moves?

Strategy Session with the Fast Money traders

Trader Brian Stutland thinks when you look at the moves in aggregate, it’s a giant neon sign that says, ‘change your trading thesis’. “I would no longer own commodities for the long-term,” he says.  “Going forward, they’re just tradable.”

And if you don’t have the stomach for swings, commodities may not be for you at all. “There’s a tremendous amount of volatility now. They’re going to fly around,” he says. “If you want to play – play with put protection,” he counsels.

Commodities Take a Hit

If you’re a trader, Tim Seymour thinks commodities may be oversold in the short-term and the play may be for a technical bounce. But long-term he thinks the path of least resistance is lower.

Largely he expects the dollar to gain significantly and a stronger dollar is bearish for commodities. “Do not be surprised to see the US dollar test the March ’09 highs – I think the dollar index is going to 89 – that makes commodities very challenging,” he says.

Trader Guy Adami is relatively more bullish. He thinks the broad sell-off in commodities was largely triggered by weakness in gold. “At some point I wouldn't be surprised to hear a central bank stepped in and bought gold. That should put a floor under all this.”

Of all the Fast traders Joe Terranova is probably the most bullish but again it's relative. “I would not go short commodities,” he says. “Look at the price action in Freeport, it held up very well.”

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Trader disclosure: On Dec. 14, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Adami owns C; Adami owns GS; Adami owns MSFT; Adami owns INTC; Adami owns AGU; Adami owns NUC; Adami owns BTU; Iuorio has calls VXX; Iuorio is short VXX and net long volum; Stutland is long AAPL and short calls; Stutland is short TLT puts; Stutland is long INTC and short calls; Stutland is long CSCO and short calls; Stutland is long YHOO; Stutland is long IBM and short calls

For Brian Stutland
Stutland Equities is a market maker holding hedged positions in VIX futures and options and VXX stock and options holding hedged positions in SPX futures and options and SPY stock and options

For Urs Dur
Lazard Capital Markets LLC makes a market in GLNG securities.
Lazard Capital Markets LLC makes a market in SSW securities.
Lazard Capital Markets LLC makes a market in FDX securities.
Lazard Capital Markets LLC makes a market in UPS securities

Gordon Johnson
No disclosures

Dana Telsey
Neither Dana Telsey, Telsey Advisory Group LLC (TAG), nor any of its employees have holdings in Michael Kors.

TAG, currently and during the previous year, has not had Michael Kors as an investment banking client. TAG may seek such a relationship in the future (the next three months). TAG has not received other fees for services from Michael Kors.

TAG, its employees, Dana Telsey and her household have no other conflicts of interest.

Neither Dana Telsey nor TAG (including its affiliates) is, either now or at any time in the past twelve months, a party to any action or proceeding by or before, or under investigation with, any federal or state governmental body or authority, or any non-governmental regulatory body or authority, or subject to any action or proceeding before any state or federal court involving allegations of criminal conduct or fraud.

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

Bill Strazzullo
Strazzullo is short gold
Strazzullo is long USO and wires