Is It Time to Surrender to the Downtrend?

After stocks fell for the 4^th day in a row on Friday investors were starting to wonder if it was time to surrender to the downtrend.

Sentiment took a sharp turn for the worse this week after the Fed downgraded its outlook on the economy and Beijing released data which suggested China's white hot economy was cooling off.

The negative momentum sent the S&P 500 below its 50-day moving average of 1088, a negative signal that technical analysts say could exacerbate a sell off.

How should you position now?

Instant Insights with the Fast Money traders

I’m seeing a lot of investors buying long dated options protection, says Tim Seymour. Specifically, a lot of huge hedge funds are buying SPX puts. The action suggests to me they think the S&P is going lower.

Right now money is coming out of stocks and rotating into bonds, adds Guy Adami, and that trend seems to be accelerating. As a result the stock market is probably sitting at a critical levels. We’re probably at an inflection point.

Going forward I think the question in the market is how will the flight to quality shake out, says Joe Terranova. In order for the S&P to rally, we need to see investors reverse their allocations and move out of bonds and into equties.

It seems to me the market is stuck in a range, says Jon Najarian. We’re trading between 1020 and 1120 and I don’t see us breaking out before Labor Day.

I expect the S&P will trade down to the early July lows of 1010, adds Michael Block of Phoenix Partners, and as a result I'm looking at short positions. My strategy is to target companies that have released either weak earnings or weak guidance.

They follow:

Michael Block’s Short Picks

Cisco Systems
Kohl’s
J.C. Penney
Hartford Finacial
Aflac

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WHAT DOES BLACKSTONE’S 62% PREMIUM FOR DYNEGY MEAN?

A freshly inked deal may give the bulls at least some momentum. Blackstone said Friday it would buy energy company Dynergy for $542.7 million or $4.50 / a share – that’s a 62% percent premium to the stock's closing price on Thursday.

It’s also worth noting that Blackstone will assume Dynergy’s debt, which is valued around $4 billion.

What’s the trade?

I think the play is longNRG , says Joe Terranova. They will acquire 4 power plants in the deal.

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SAFE HAVENS: BONDS, DOLLAR AND GOLD

The Fast Money gang is keeping a close eye on the safe havens with both the dollar and gold higher for the week.

Treasuries, however, may be a different story.

At least that’s what some investors may conlude after examining the latest data released by PIMCO. The world's biggest bond fund, Pimco's $137 billion Total Return Fund, cut its market value weighting in government-related debt to 54% at the end of July from 63% at the end of June.

What should you make of it?

I wouldn’t make too much of it, says strategic investor Dennis Gartman. PIMCO is so large they need to go elsewhere. I think that’s all they’re doing.

*Hear more from Gartman. Watch the video above.

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GM IPO COULD BE AVAILABLE TO RETAIL INVESTORS

According to Reuters, GM is considering making 20-30% of its IPO available to retail investors.

As you may know, GM is expected to IPO as soon as next week.

What’s the trade?

Any way you can get exposure to this company, I say do it, counsels Tim Seymour.

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RIM CAPS TECH SLAUGHTER ON TORCH DISAPPOINTMENT

As if HP and Cisco hadn't done enough to wreck the tech trade, RIM ended the week by launching its new Torch smartphone to very little fanfare and tepid reviews.

What’s the trade?

If you believe in the market then RIM may be attractive on the pullback, says Guy Adami.

If you want to play the space, I’d look at storage names such as EMC , counsels Joe Terranova.

I’d keep an eye on Intel, says Tim Seymour. If it trades down to $18.25 I’d load the boat.

Going into the holiday season, SanDisk should win, adds Jon Najarian. Their chips are in gadgets that people buy as gifts.

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Trader disclosure: On Aug 13, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour owns (BAC), (BX), (GOOG); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Terranova owns (AKAM), (BAX), (FCX), (MOS), (PFE), (SU), (XBI); Terranova owns (GLD) Calls; Jon Najarian owns (CSCO) short calls; Jon Najarian owns (LVS) short calls; Jon Najarian owns (AA) short calls

For Patty Edwards
Edwards owns (CSCO) for clients
Edwards owns (BAC) for clients
Edwards owns (C) for clients
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Edwards owns (TTM)
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Edwards owns (VXX) for clients
Edwards owns (SPY) for clients
Edwards owns (QQQQ) for clients

For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
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For Dennis Gartman
Funds managed by Gartman are short Euros
Funds managed by Gartman

For Michael Block
***No Disclosures***

For Dan Greenhaus
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CNBC.com with wires