'Fast' Traders: No Correction Around the Corner

Traders expecting a correction got the catalyst they were waiting for in the form of another China rate hike on Tuesday.

China’s central bank raised lending and deposit rates by 25 basis points in an effort to dampen domestic inflation, which hovered near 28-month highs in Dec. and is still above 4 percent.

Yet, instead of selling off, the markets were flat to slightly higher on Tuesday. So much for a correction, right?

The surprising response to the seemingly bearish market headline had "Fast Money" traders doubting a correction was, in fact, around the corner.

“I am rather surprised by the ability of the market to hang in there right now,” said Joe Terranova, chief market strategist at Virtus Investment Partners. “Everyone is looking for a correction.”

The markets continued rally in the face of negative headlines makes shorting stocks risky, cautioned Kanundrum Capital’s Brian Kelly.

“Everyone I am talking to is saying this is a market you can’t short. It doesn’t make sense,” Kelly said. “They are just covering every short out there.”

Kelly said that heavily shorted names were likely getting a bounce as traders scrambled to cover and buyback shorted stocks. Indeed, Hovnanian Enterprises , a homebuilder stock with 32.8 percent short interest, saw shares rise in early trading Tuesday. MakeMyTrip , an Indian travel company with 37.5 percent short interest was up nearly 1 percent.

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CNBC.com with wires.