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Pro Traders Using These 'Tells' to Gauge Correction

Gloom settled over Wall Street on Wednesday as if it were a dark rain cloud blotting out the summer sun.

For the 6th straight day the S&P finished the session lower and investors ran for the exits, worried that the economy was slowing to such a degree that it could worsen the market's retreat.

The latest evidence of a slowdown came in the Federal Reserve's Beige Book, which showed costlier food and energy prices as well as supply disruptions stemming from Japan's earthquake were taking a toll.

That reinforced the bearish comments made by Fed chief Ben Bernanke earlier in the week.

Market were also disappointed that the Fed gave no signs that it would support the economy further after QE2 draws to a close later this month.

"Investors are re-pricing the slowdown after Bernanke crystallized it," says Jason L. Ware, senior equity research and trading analyst at Albion Financial Group in a Reuters interview. On top of that, "the market was hoping for an indication that there may be another round of stimulus but clearly, that's not what they got."

To make the situation all the more precarious, another 20 points lower and the S&P will turn negative for the year.

How should you position now? What should you be watching?

Instant Insights with the Fast Money traders

Trader Stephen Weiss admits that he was very disappointed by the market action on Wednesday. “If there was a day for the market to bounce it should have been Wednesday,” he says.

Trader Steve Grasso thinks the best thing to do is play defense. “June isn’t good for markets – I’d sit on my hands,” he counsels.

Or if you must be invested Grasso says use the weakness to average down. And he also says keep an eye 3 sectors Health Care, Utilities and Consumer Staples. Grasso thinks if the market turns negative for the year, money managers will put money to work in these 3 areas. "They'll stick with what's working," he says.

If you’re looking for a sign that the correction is coming to an end trader Joe Terranova recommends watching the defense trades – names like McDonald’s and Pepsi . He says if a market whoosh sends these names lower, “it may be the beginning of the bottom.”

However, Terranova concedes without stimulus from the Fed he thinks there’s no catalyst to send stocks higher until earnings season begins in July. And the market will need to strength in those profit reports.

Karen Finerman tells the desk she’s starting to get a little longer. She reminds the desk that the S&P is down 5% for the month, in less than 10 days. With the Vix starting to climb she thinks “a puke-out day may be coming and that may be a good thing.”

Oppenheimer’s Carter Worth is keyed into the 150-day moving average on the S&P 500. He says the index is sitting right at this key level. “Almost every major index is at that level and we are buyers here for a rebound.”

However, he offers one caveat. At this level – the average price over 150-days – we’d need to bounce within a 4- 6 week period. The longer we don’t bounce, the implication is we’re not able to bounce.



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Trader disclosure: On June 8, 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 (KSS); Terranova owns (CVI); Terranova owns (OXY); Terranova owns (TM); Terranova owns (BJ); Terranova owns (DIS); Terranova owns (PFE); Terranova owns (V); Terranova owns (HPQ); Terranova owns (FLX); Terranova owns (JPM); Terranova owns (MCD); Terranova owns (PEP); Terranova owns (VRTS); Terranova is short (DELL); Finerman and Finerman's firm own (AAPL); Finerman and Finerman's firm own (BP); Finerman and Finerman's Firm own (CMI); Finerman's Firm owns (IBM); Finerman owns (C); FInerman owns (JPM); Finerman's Firm owns (JPM) leaps and (JPM); Finerman's Firm owns (TGT); Finerman owns (UNG); Finerman's Firm is short (IWM), (MDY), (SPY); FInermans firm is long S&P Puts, Russell 2000 Puts; Grasso owns (AKS); Grasso owns (AMD); Grasso owns (ASTM); Grasso owns (BA); Grasso owns (BAC); Grasso owns (C); Grasso owns (D); Grasso owns (HOV); Grasso owns (JPM); Grasso owns (LIT); Grasso owns (LPX); Grasso owns (MHY); Grasso owns (NDAQ); Grasso owns (PFE); Grasso owns (PRST)

For Brian Kelly:
Accounts Managed by Brian Kelly Capital own (GLD)
Accounts Managed by Brian Kelly Capital own (SLV)
Accounts Managed by Brian Kelly Capital own (IWM) puts
Accounts Managed by Brian Kelly Capital own new zealand dollar
Accounts Managed by Brian Kelly Capital own swedisk krona
Accounts Managed by Brian Kelly Capital own canadian dollars;

For Joe Terranova
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSWI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLF)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of DOMINO'S PIZZA UK & URL PLC
Virtus Investment Partners Owns More Than 1% Of (DRYS)

For Steve Grasso:
Stuart Frankel & Co and it’s partners own(CSCO)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HPQ)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MU)
Stuart Frankel & Co and it’s partners own (MSFT)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own RDC
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners own UAL
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners are SHORTS (QQQQ)
Stuart Frankel & Co and it’s partners own (AAPL)
Stuart Frankel & Co and its partners Are Short (AAPL)

For Glen Yeung
Citigroup is a market maker in (AAPL)



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