Daily Wrap-up - The Dow Jones Industrial Average Suffers a 330-Point Loss

The session started with a quick burst of selling pressure and the situation only deteriorated from there. The Dow Jones Industrial Average (DJIA) posted a loss of over 330 points and closed at its lows but remained the "strongest" of the broad market indices. While it dropped 4%, the S&P 500 (SPX) and Nasdaq Composite (COMP) each lost over 5%. The Russell 2000 (RUT) was the weakest with a loss of 7%. Meanwhile, the CBOE Market Volatility Index (VIX) surged 22%.

Few sectors offered a place to hide from the selling. Financials remained the weakest area with the Regional Bank HOLDRS (RKH) posting a stunning single-day loss of more than 23%. The Broker/Dealer Index (XBD) lost over 11%. Most of the groups on my list lost at least 5%.

Earlier we saw that that the Amex Gold Bugs Index (HUI) was moving higher with the streetTRACKS Gold (GLD). That strength faded as the HUI slid into negative territory by the close. In years past, gold stocks had a reputation as offering a hedge to the market but, as noted below, the recent correlation has been positive.

As the bottom chart below shows, the Dow violated the near-term support near 8000. This leaves the November lows as the next major level to watch. The indices aren't quite hitting those levels yet, but they are in a position to challenge them. I will be watching the daily charts below closely here.

As they stand now, the S&P 500 and Dow Jones Industrial Average are showing short-term oversold readings and sitting near significant support. This is a situation where we "should" (in theory) see buyers step in. Therefore, a break below the November bottom would be a bearish sign for the market. And that is where I will pick up in the morning. Have a nice evening.

Chart Courtesy of Thomson Financial

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Charts Courtesy of Thomson Financial

Chart Courtesy of Thomson Financial

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