Halftime Report: Fear Surge Capitulation Signal?

Investors spent much of Friday wringing their hands, grappling with the negative impact of a stronger dollar on commodities versus a modest improvement in the unemployment rate.

With the Vix showing that fear is accelerating in the market, should you get out -- or does it suggest a rally is just around the corner?

Instant Insights with the Fast Money traders

I look at charts of the S&P and see potential, says Scott Redler of T3. With the Vix showing fear picking up in the market, I’m getting excited. If we get close to that capitulation ‘puke-out’, don’t get scared. It’s actually an opportunity. Around 1040 I’d be a buyer.

But volume at the NYSE has to be 1.6 or 1.7 to really flush out the market, says Steve Grasso, and we’re not there. Yes, there’s confusion in the market but we probably don’t have the fear we need for capitulation.

However, the Vix is breaking above its 200-day moving average, adds Scott Nations of NationsShares. That had been a cap.

But the S&P 500 broke below levels of support at 1080, adds Katie Stockton of MKM. That breakdown is significant. I see increased downside risk to the 200-day moving average, which is right around 1020.

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COMMODITIES SELL-OFF CONTINUES

Commodities took it on the chin, again Friday with oil hit by a double-whammy – a stronger dollar and concerns about global demand.

In the metals complex, dollar strength hammered metal prices broadly, with gold and copper both sliding to three-month lows.

Meanwhile, the euro fell to its weakest versus the dollar since May 2009 and was unable to sustain gains after wider bond spreads in Europe highlighted fears over the indebtedness of the region's weaker economies, spurring risk aversion.

What should you be watching?

Patterns in the Dollar Index suggest that if the index closes above 80, it could go to 84, explains Katie Stockton. In turn that would be bearish for crude and other commodities.

Options action in the UUP suggests big investors expect the dollar to rally from here, adds Scott Nations.

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TOPPING THE TAPE: TOYOTA REBOUNDS HIGHER

Shares of Toyota gained on Friday after Toyota President Akio Toyoda apologized for safety problems that have left the Japanese carmaker "in crisis."

Meanwhile, the automaker is mulling the potential of another recall -- this time over the brakes on the newest Prius hybrids.

What’s the trade?

Toyota went from $92 to the low $70’s, explains Scott Redler. Yesterday when the selling accelerated into the close Toyota did not make new lows which I considered an opportunity. I’m long in the money calls looking for a bounce back. I think the stock could go to $75.

Patterns suggest to me that $72.50 is support, adds Katie Stockton. However, if it breaks below that the stock could go into the high 50’s.

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CALL THE CLOSE

Steve Grasso: I think the S&P goes to 1000. I’m a seller.

Scott Nation: I’m a seller.

Katie Stockton: I’m a seller. There are too many breakdowns to ignore.

Scott Redler: If we get to 1040, I’m a buyer.

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Trader disclosure: On February 5th, 2010, 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 (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Najarian Owns (AAPL) Call Spread; Najarian Owns (INTC) Calls; Najarian Owns (MS), Is Short (MS) Calls; Najarian Owns (PFE); Najarian Owns (QCOM) Call Spread; Najarian Owns (XLF) Calls; Finerman's Firm Is Short (IJR), (IWM), (SPY), (MDY), (UNG), (USO); Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leap; Finerman Owns (BAC) Preferred, (BAC); Finerman's Firm And Finerman Own (CVS); Finerman's Firm And Finerman Own (GOOG); Finerman's Firm Owns (KFT), (MSFT), (TGT); Finerman's Firm And Finerman Own (WFC) Preferred; Terranova Owns (BAC), (JPM), (OIH), (GOOG), (EMC), (AAPL), (DELL), (MSFT)

For Joe Terranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DLR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (SKT)

For Will Landers
BlackRock Latin America Fund Is Long (PBR)
BlackRock Latin America Fund Is Long (ITUB)
BlackRock Latin America Fund Is Long (VALE)
BlackRock Latin America Fund Is Long (AMX)

For David Bank
RBC Capital Markets Or Affiliate Managed Or Co-Managed A Public Offering For (DIS), (DISCA) In Past 12 Months
RBC Capital Markets Or Affilaite Received Investment Banking Compensation From (DIS), (DISCA) In Past 12 Months
RBC Capital Markets Is Providing (DIS), (DISCA), (IPG) With Non-Securities Services
RBC Capital Markets Has Provided (DIS) With Investment Banking Services In Past 12 Months
RBC Capital Markets Has Provided (DIS), (DISCA), (IPG) With Non-Securities Services In Past 12 Months

For Mike Khouw
Cantor Fitzgerald & Co. Is A Market Maker In (GILD)

Other Relevant Disclosures:
Finerman's Firm Owned (PLCE) On 1/29/10
Finerman's Firm Owned (MSFT) On 1/27/10
Najarian Owned (BG) Call Spread On 1/5/10
Terranova Owned (BAC) On 1/19/10

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