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Looking for Signals the Selling is Over? Pros Reveal Their ‘Tells’

On Monday chatter on the floor had everything to do with the downward whoosh in the market and how much more selling might lie ahead.

By the end of the session, the S&P 500 was trading almost 18% lower from its 2011 closing high reached on April 29. That’s just 2% away from bear market territory.

And there were plenty of other negatives. The Dow closed below 11,000 and the Vix spiked to levels not seen since May 2010.

Typically this kind of action would signal a crescendo in the selling – something traders call capitulation. However, this time may be different.

"I hate it when the market closes below its low, as it sets up for follow-through (selling) tomorrow," explains Joseph Mazzella, senior equity trader at Knight Capital in a Reuters interview. "It's scary, it really is," he says.

When will the selling be over? What should you be watching?

Instant Insights with the Fast Money traders

Trader Joe Terranova thinks the market is due for a bounce. And he thinks the action in gold , Treasurys and the yen will provide the market with a ‘tell’.

When investors are again ready to embrace risk he expects all 3 to trade against the trend. “They’ve been attracting safe haven capital,” he says. In other words, when investors are ready to put that money to work in stocks, which are a higher risk investment - gold, the yen and Treasurys should fall.

Karen Finerman agrees that the market is reaching oversold levels. However, she also says there are so many unexpected catalysts in the market that she’d proceed very cautiously. “Sure, there are stocks I’d like to buy such as Apple but I wouldn’t step into the market just yet,” she says.

Trader Dan Nathan is watching the action in the Vix which spiked above 50 before paring some of those gains, as one of his key 'tells'. “The Vix looks like its signaling we’re almost done with the selling,” he says. “We could get a short covering rally." But, at least for the time being, Nathan is a seller of rallies.

Tim Seymour suggests watching the latest economic data out of Beijing on Monday night as another market ‘tell’. “Pay attention to China,” he says

If CPI comes in lower than expected Seymour thinks “Beijing may take its foot off the brakes.” In turn, that could put a bid under commodities. However, he adds, even if the market bounces, “I don’t think all the selling is over.”



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Trader disclosure: On Aug 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; Nathan is short (AAPL) puts; Nathan owns (BAC) puts; Nathan owns (CMG) put flys; Nathan owns (LNKD) calls; Nathan owns S&P 500 puts; Seymour owns (AAPL); Seymour owns (BAC); Seymour owns (GE); Finerman and Finerman’s firm own (AAPL); Finerman owns (BAC) and Finerman’s firm own (BAC) leaps; Finerman owns (JPM) and Finerman’s firm owns (JPM) stock and (JPM) leaps; Finerman’s firm owns (HPQ) stock and (HPQ) puts; Finerman’s firm owns (MSFT); Finerman's Firm Is Short (IWR); Finerman's Firm Is Short (MDY); Finerman's Firm Is Short (XRT); Finerman's Firm Is Short (SPY); Finerman's Firm Is Long S&P 500 Puts; Finerman's Firm Is Long Russell 2000 Puts; Terranova owns (VRTS); Terranova owns (LQD); Terranova owns (IBM); Terranova owns (FCX); Terranova owns (CVI); Terranova owns (AAPL); Terranova owns (GS); Terranova owns (GOOG); Terranova owns (XOM)

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