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Halftime: Watch for These Signs of Further Market Weakness

On Wednesday investors, again, went running for the exits, sending the S&P into negative territory and the Dow lower by triple digits, with the Street worried that -- at least for the time being - the path of least resistance in this market is lower.

On the economic front, the latest New York State manufacturing data spooked the Street unexpectedly contracting in June, falling below zero for the first time since November.

The numbers seem to confirm what so many pros have feared – that the economy is slowing if not sputtering out.

However, of greater concern, are developments in Greece, after tens of thousands of Greeks took to the streets to protest new austerity measures that call for more than $9 billion in tax hikes and spending cuts.

Adding to the headwinds, Moody's said it may cut the credit ratings of French banks, citing exposure to Greek debt.

With storm clouds rolling over Wall Street, what should you be watching. How should you position now?

Instant Insights with the Fast Money traders

Most of the Fast traders are looking for the sell-off to continue. Following are the signs they're watching .

- Pete Najarian points to the action in the Vix which surged up toward 20. “Folks are getting nervous and puts are being bought,” he says. He also doesn’t like the action in the bank stocks, the weakest sector in a weak market with no clear catalyst to take them higher “The Vix and banks say it all – stay away,” he counsels.

- Trader JJ Kinahan is watching the Vix combined with key S&P levels. “If we break below 1250, with the Vix over 20 we could be in for some trouble,” he says. And he reminds that Friday is quadruple witching, and that could roil market, as well.

- Dennis Gartman is watching cooper, zinc and nickel which he says are "speaking loudly and clearly" – they’re breaking trend lines. He takes that as a sign of slowing industrial demand - and says stock prices are probably going lower, too.”


- Win Thin of Brown Brothers Harriman is focusssed on history. “The Europeans have done everything at the 11th hour under duress and that’s (probably) the way (the Greece crisis) is going to unfold this time. “That suggests commodities and EM and other risk assets trade lower in the near term.”

- Trader Steve Cortes says, “I’d get defensive,” he says. Cortes thinks the way to go is with dividend paying consumer staples and utilities .

However, we do have some optimists.

- Zach Karabell, who tends to take a longer-term time horizon says, “This is not a market that one should bail on – there will be a resolution to this.” In other words he thinks the fear of a Greece default is much greater than the liklihood of one.

- Deutsche economist Joe LaVorgna also sees the glass as half full. “If you want to sell the equity market you have to believe the economy is going into a double dip and I just don’t believe it,” he says.

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EURO CRUMBLES

As we mentioned above, the traders are closely watching the action in the euro with the debt crisis in Greece again landing in the spotlight.

However, trader Steve Cortes suggests paying more attention to what happens in Spain. "It’s so much bigger in population," he says. "If it breaks it would break the euro entirely," he speculates.

Cortes says you can gauge developments by using CDS or watching the action in BBVA . "If the stock breaks $10.50 I would start to get extremely concerned."

Hear our entire conversation on the euro including comments from Win Thin of BBH. Watch the video now!

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BANKS STILL WEAKEST SECTOR IN A WEAK MARKET

Concerns about the economy triggered weakness in the financials with the beleaguered sector trading at valuations that would seem attractive, if not for the serious headwinds.

How should you play it?

As a contrarian trader Steve Cortes is getting interested in financials . "Although I think the market will go lower – I think the banks have already gone lower – and we may be nearing a place to buy," he says. "I’m most interested in Morgan Stanley – at 22," he says.

JJ Kinahan says if you're going to play the space, look at banks such as Morgan and Goldman over BofA and Wells ; the latter are far more exposed to real estate, he says.

Zach Karabell can't get on board. "Banks are cheap for a reason," he says.

Pete Najarian agrees with Karabell. Until we know more about regulation and until banks are able to again pay dividends, Najarian just doesn't see a catalyst to take them higher.

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PANDORA IPO

The traders are closely watching the action in Pandora, which priced at $16 and then surged with investors rather optimistic on the prospects for the Internet radio company.

What’s the trade?

Pete Najarian wouldn’t touch this stock. He compares it to the early days of LinkedIn. “People want to get in, they flip and then they get out.” In other words, unless you’re a pro, this is the deep end of the pool.

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ANALYZE THIS: IS ‘STAGFLATION’ HERE?

The numbers don’t lie. Inflation is on the rise and economic growth hit the skids.

On Wednesday investors were forced to grapple with a double whammy of CPI data coming in hot and Empire manufacturing falling off a cliff.

That’s triggered whispers of the dreaded ‘S’ word -Stagflation. Is stagflation threatening the markets?

Find out from Deutsche economist and CNBC Contributor Joe LaVorgna. Watch the video now!




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Trader disclosure: On June 15, 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 (CROX); Najarian Owns (MOS); Najarian Owns (MS); Najarian Owns (C); Najarian Owns (CLF); Najarian Owns (ACI); Najarian Owns (RSX); Najarian Owns (F) Bonds; Cortes Owns (GOOG); Cortes Owns (SVU); Cortes Is Short Nikkei; Cortes Is Short (EUR); Cortes Is Short (AUD); Cortes Is Short Silver; Cortes Is Short (BIDU); Cortes Is Short Corn; Kinahan Owns (AKS); Kinahan Is Short (SPY); Kinahan Is Short (SLV); Kinahan is short (WFC) puts

For Zachary Karabell
River Twice Capital Is Short (SPY)
River Twice Capital Is Short (XLF)
River Twice Capital Is Short (XLI)
River Twice Capital Is Short (FXE)

For Dennis Gartman
Funds Managed By Dennis Gartman Are Long Gold
Funds Managed By Dennis Gartman Are Short Euros






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