On Wednesday investors were trying to determine if the triple digit decline in the Dow and weakness in the S&P 500 foreshadowed more negative market action in days to come.
"Although we're in a quiet time of year, no one is changing their views on Europe,” says Neal Neilinger, chief investment officer at Aladdin Capital in a Reuters interview.
In other words, the belief that the US stock market would shrug off bad news out of Europe has not played out. And on Wednesday, the market got some pretty sobering news.
Published reports in the Financial Times and elsewhere revealed that European banks had deposited record amounts of cash with the ECB.
That spooked investors because it suggested European banks fear doing business with other European banks. “In other words, European banks will only park money overnight with the ECB – and not with each other,” explains trader Steve Cortes. “It’s generating nervousness reminiscent of Lehman,” adds CNBC Contributor Ron Insana.
Developments not only remind US investors that the US market remains at the mercy of Europe, it also suggests the crisis has several innings left.
As a result Steve Cortes thinks the current sell-off is the tip of the iceberg.
Although he considers the US as an island of relative strength, “With 40% of S&P profits coming from overseas I don’t think US companies can de-couple from Europe. Can mutli-nationals export – my guess would be no?”
To confirm his thesis he points to the action in emerging markets. “The BRICs are trading near their 2011 lows. There’s a world awash in risk. I don’t think the US, although strong, can sail through that storm.”
If you’re looking for a ‘tell’, Pete Najarian suggests watching the financials.
He says for the past several months they’ve been a leading indicator. “And they’re breaking down on Wednesday,” he says. He thinks what happens in the XLF aorund 12.85 - the 50-day will be telling. “Also the Vix is moving higher.” Neither bodes well for bulls.
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Trader disclosure: On Dec 28, 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 C; Najarian is long HPQ; Najarian is long MT; Najarian is long PFE; Najarian is long LLY; Najarian is long MRK; Najarian is long MSFT; Najarian is long YHOO; Cortes is long K; Cortes is short EUR; Cortes is short GBP; Cortes is short Crude; Cortes is short Gold; Cortes is short XRT; Cortes is short IYT; Cortes is short CSX; Dicker owns GM; Dicker owns RIG; Dicker owns NBL
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