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After Cinco de Mayo, Bulls Planning Cinco de ‘Buy’-O?

The S&P fell for the fourth straight session on Thursday with bulls sidelined by weakness in commodities.

Of all the down moves, the Fast Money traders were particularly focused on the price action in silver. The shiny metal plunged again on Thursday; it’s now heading for its biggest weekly loss since 1983.

In fact, silver is effectively in a bear market, now down more than 20 percent from its high, the conventional criteria for a bear market. Ironically, it was only last Thursday that silver had made its bull market high, trading near $50 an ounce.

But silver was hardly the only commodity that was weak. Oil, gold , and materials also moved lower, a worrisome trend for bulls because commodities and related stocks had been market leaders.

Is the sell-off in silver and commodities a sign of serious trouble? How should you position?

Instant Insights with the Fast Money traders

Borrowing a trading theme from Warren Buffett, trader Guy Adami thinks we may be looking at a case of be greedy when others are fearful.

”Commodities take the stairs up and the elevators down,” he reminds. And in the case of silver we’re down, way down. “When it looks the scariest, that’s typically the best time to get in,” he says. “I think you’re going to see a $3-$4 bounce in silver.”

He also says May 5th or Cinco de Mayo could be Cinco de Buy-O. In other words, he thinks Thursday’s sell-off could be an opportunity – at least for traders interested in playing silver.

Analysis from Chris Verrone of Strategas Research Partners suggests the sell-off could be a buying opportunity across the entire S&P.

”We judge the market right here to be just fine, says Verrone. “We think this is a healthy correction in an ongoing uptrend.”

He points to a few bullish factors. “90% of S&P stocks still have their 50-day above its 200-day, that’s a healthy reading,” he says.

Also, ”all the major moving averages are upward sloping. Corrections against the backdrop of upward sloping moving averages rarely get you into trouble.”

On top of that, “we’ve just had 125 new highs on the S&P against 2 new lows,” he explains. “Its very difficult to make money on the short side when stocks are not breaking down."

All told, “The longer term trend in the market is higher, not lower,” says Verrone. "We're looking for an oversold bounce."

Trader Steve Cortes is on the other side of the trade, entirely.

He describes the break in silver as “material” and suggests the reversal is quite serious. “It will have an impact on the whole universe of risk-taking,” he says. “It’s the first of the speculative trades to unwind and will probably pull other markets down with it.”

To support his thesis he explains that not only are commodities weak, but nations that are largely tethered to commodity prices such as Brazil are also trading poorly.

“I think the whole commodity story is starting to unwind, broadly. And that we’re in the early innings of the unwind,” he says. “We’re seeing the beginning of the commodity bubble’s pop.”

Trader Steve Grasso also expects weakness, though not quite to the same degree as Cortes. “The trend has reversed,” he says. “We’re looking at lower prices in the market.”

Lind-Waldock market strategist Rich Ilczyszyn suggests keeping an eye on the US dollar, which hit a plateau after comments from Jean Claude Trichet suggested the ECB was unlikely to raise rates again. “The dollar is in play and that could mean more softness,” he says.

What do you think? We want to know!

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Trader disclosure: On May 5, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova owns (XOM); Terranova owns (BAX); Terranova owns (SLV); Terranova owns (TCK); Terranova owns (APA); Terranova owns (HOC); Terranova owns (OXY); Terranova owns (UPL); Terranova owns (FCX); Terranova owns (BX); Terranova owns (V); Terranova owns (VRTS); Terranova owns (JPM); Terranova is short (NFLX); Terranova is short S&P Futures; Adami owns (AGU); Adami owns (C); Adami owns (GS); Adami owns (INTC); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU); Finerman and Finerman's firm own (AAPL); Finerman and Finerman's firm own (BP); Finerman owns (C); Finreman and Finerman's firm own (CVS); Finerman's firm owns (IBM); Finerman's firm owns (JPM) and is long (JPM) leaps; Finerman owns (JPM); Finerman and Finerman's firm own (MSFT); Finerman's firm owns (TGT); Finerman owns (UNG); Finerman owns (USO); Finerman's firm is short (IWM), (SPY), (MDY); Finerman's firm owns s&p puts; Finerman's firm owns Russel 200 puts; Seymour owns (AA); Seymour owns (AAPL); Seymour owns (F); Seymour owns (POT); Seymour owns (SLW); Cortes owns (SO); Cortes owns (EXC); Cortes owns (GS); Cortes is short (F); Cortes is short (AXL); Cortes is short Nasdaq futures; Cortes is short EEM vs. SPY; Cortes is short EUR/USD; Cortes is short EUR/CHF; Cortes owns (TGT); Cortes is short 5-Yr Treasury Notes

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