'Fast Money' Recap: Market Overreacts

NEW YORK ( TheStreet) -- The markets plunged Wednesday on disappointing economic data.

The Dow Jones Industrial Average dropped 178.84, or 1.48%, to 11,897.27. The S&P 500 fell 22.4, or 1.74%, to 1265.43. The Nasdaq slid 47.26, or 1.76%, to 2631.46.

Tim Seymour said on CNBC's "Fast Money" TV show that market overreacted to the eurozone debt situation and Greece, where the prime minister was desperately trying to deal with a crucial austerity bill amid violent protests.

Seymour said the markets are starting to see the VIX expand, making it a dangerous place to trade. He said it was surprising to see the markets respond so dramatically to today's events in Europe as if they were being heard for the first time.

For a breakout of some stocks from a recent "Fast Money" TV show, check out Dan Fitzpatrick's "3 Stocks I Saw on TV."

3 Stocks I Saw on TV

Steve Grasso reminded the panel of an earlier bearish signal he made that the selloff would be coming when the S&P reached 1291.

Guy Adami said the market needs to hold at 1249.05, but he doesn't think it will and believes a selloff of a "larger magnitude is on the horizon."

With the VIX moving above 20, Karen Finerman sensed a feeling of panic in the market, replacing complacent selling during the first part of the month.

Seymour said it's not fair that stocks are being priced as if there were going to be a "complete implosion of the financial system."

Brian Kelly said the catalysts for today's selloff was the downgrade of the French banks with exposure to Greece's intractable debt problems.

Melissa Lee, the moderator of the show, noted that crude fell below $95 a barrel. Seymour said the decline had less to do with fundamentals and supply disruption and more to do with an inverse dollar trade.

Adami said the oil service names like Halliburton ( HAL) look as though they are breaking down. Grasso said he was sticking with the refiners trade.

Looking ahead to July, Grasso noted that homebuilders and industrials have done well in July in the past four years. Seymour said the banking sector in Europe is in terrible shape because of the situation in Greece. Kelly said he would be looking to short Barclays ( BCS).

Finerman said she was still in JPMorgan ( JPM), adding she didn't think the European contagion would spread to the U.S.

Shifting briefly to the auto sector and a second-quarter profit warning from Ford ( F), Seymour said the auto giant is seeing a weaker second half due in part to production constraints in fuel efficient vehicles.

Adami said BorgWarner ( BWA) gave up the ghost after rising significantly earlier in the session. "It's hard to buy anything now."

Lee brought in Andy Busch, a BMC Global market strategist, to talk about a euro trade. He said Monday will be a key date because that's when the econfin ministers are supposed to come up with something to deal with Greece's debt problems. He said that plan is needed before the IMF can take any action.

He said the easy trade would be to sell the euro. He said Greece's problems can only be resolved through a default and restructuring of the debt.

Carter Worth, a chartologist with Oppenheimer Asset Management, had some hope for the markets. According to his reading of the charts, the markets appear to going through a normal correction and that it would be advantageous to be buying on weakness.

The panel tried to put together some indicators for the market selloff. Lee mentioned the Glencore IPO as representing the top for the commodities market and the Pandora IPO as a top for "new tech" enthusiasm.

Adami said he would throw in the financials and Research In Motion ( RIMM) as indicators as well.

Seymour said it's impossible to use the IPOs as one-day barometers for the market's behavior.

For another view of the selloff, Lee brought in Scott O'Neil, president of who had a dire forecast of the slide. He pointed out several factors that led him to believe the decline will be prolonged. He said that there is too much selling into market; that 50% of the list of stocks that have done the best in the bull run have topped; that there is a group rotation to defensive names; and that stocks and indices are up on low-volume days and down on big-volume days.

Looking ahead to Thursday's jobless claims report, Grasso said the number will be in the vicinityof 400,000, which he said is a huge mental hurdle for the markets.

In an economic showing signs of stagflation, consumers will be looking for stores that offer the best prices. In a survey of more than 100 products at Wal-Mart ( WMT) and Dollar General ( DG) stores, Mark Montagna, a retail analyst with Avondale Partners, said Dollar General was able to maintain price parity with Wal-Mart.

He said he has a market outperform rating on Dollar General, which he is forecasting EPS growth of 14% to 20% over the next three years. He said Dollar General has soundly beaten Wal-Mart in comparable store sales.

In the final trades, Kelly said he was picking up some more SPDR Gold Trust ( GLD). Seymour liked Tata Motors ( TTM). Adami liked NetApp ( NTAP). Finerman liked Kinder Morgan Energy Partners ( KMP). And Grasso advised scaling back on AK Steel ( AKS).

--Written by David Tong in San Francisco.

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