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Pro Traders: How to Minimize the Pain from the Sell-Off

On Friday, it seemed traders on the floor had stopped asking if the market could rally and started asking just how much farther will stocks fall.

Pessimism swept across the Street, after The Nasdaq erased its gains for the year, and the Dow slipped below the psychologically important 12,000 level.

Looking at the S&P 500, the index was on track for a sixth straight week of losses. ”We’re in the middle of the worst losing streak since 2002,” says host Scott Wapner.

Selling was triggered by reports that China exports slowed and Brazil retail sales slipped unexpectedly. Considering most of the economic data has been weak lately, investors considered the new information as confirmation that the world was in the midst of a full blown global slowdown. “That’s the presumption (investors) read from all this,” says Pete Najarian.

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

Instant Insights with the Fast Money traders

Trader Steve Grasso thinks the market is trading on technicals and suggests a few key levels that he says every investor should be closely watching.

First he thinks how the S&P behaves around 1275 is important, that’s the Egypt bottom. If the market breaks below that level, Grasso says 1257 is the next key level – that’s flat on year. And after that he suggests watching 1228 – the 50-week average. “I think we’re going to be down there shortly, but nothing happens in one fell swoop,” he says.

If you’re looking for ideas, trader Patty Edwards suggests putting money to work in Exelon or the utilities . “Other than that I wouldn’t go too long.”

Steve Grasso agrees with her call. “If you look back at the sell-off from June 1st, the sector that got hit the least was utilities,” he says. “It profits as we move up the ladder and doesn’t hurt you as much as we move down the ladder.”

Trader Stephen Weiss says if you want to be long look at some MLPs such as ETP or NS . However, the trade he prefers is short engineering and consulting firms such as Fluor and Foster Wheeler. “If we’re looking at a global slowdown those stocks are way over valued,” he says. (Weiss wrote about this trade in depth. Click here to check out his post.

Pete Najarian thinks the sell-off presents opportunities. “You’ve got to look at balance sheets and be selective but there are opportunities,” he says.

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OIL BACK BELOW $100 ON GLOBAL SLOWDOWN CONCERN

Turning attention to commodities, oil made its largest drop in over four weeks on Saudi Arabia's plans to go it alone and increase production without OPEC.

Pete Najarian thinks oil now “looks like it’s going to $92. That’s the level where oil traded before all the unrest in the Middle East (generated a fear premium). If we continue to get weak economic data, I’d expect oil to decline.”

Patty Edwards agrees in the longer-term. However, in the near-term she thinks oil stays between $98.40 – $100.40. She doesn’t see oil getting back to $92 until Gaddafi leaves Libya.

Trader Stephen Weiss isn’t so sure oil is going lower at oil. “Consumption in India and China hasn’t slowed,” he says. He thinks if oil drops at all, it’s a temporary move lower and then it takes off again.

Meanwhile, the Fast traders were also closely watching the spread between Brent Crude and West Texas Intermediate, which touched $19 dollars, it's widest gap on record. Pete Najarian wouldn’t be surprised if the spread starts to unwind.

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MONEY IN MOTION CURRENCY TRADING

With fundamentals in question for both the dollar and the euro, which currency is worse?

Find out from Mike Moran of Standard Chartered thinks the euro is nearing a tipping point.

Watch the video now!


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Trader disclosure: On June 10, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Najarian Owns (BEXP); Edwards Owns (XLK); Edwards Owns (FXC); 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); Weiss Is Short (FLR); Weiss Is Short (FWLT); Weiss Is Short (DE); Weiss Owns (TWM); Weiss Owns (UUP); Weiss Owns (QCOM); Weiss Owns (ETP); Weiss Owns (NS); Weiss Owns (HAIN); Weiss Owns (JPM); Weiss Owns (KEY); Weiss Owns (CMA); Weiss Owns (DVN); Weiss Owns (COP); Weiss Owns (HK)

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