Ugly day

The cascade started in Europe and continued...the DAX, which was highlighted here recently, closed -2.5% with the worst damage coming in Italy, Spain and France. And when the Europeans stopped selling locally, they turned their guns on the US - yes 11:30 am was the exact time when our trend down day started to accellerate.

So whats the damage? A lot. Granted the S&P is only down a little over 4% from its recent frothy highs (with small caps taking the brunt of the risk-off selling down over 7%). But when you look at levels that should hold and are not, like 50day moving averages in the index(s) and more stable moving averages like the 100day and 200day in individual stocks, then the signs become more troubling. Moreover, trendlines in the indices that were holding steady since the Dec lows have been broken and this adds more fuel to the fire.

On a short term basis, my proprietary indicators have the IWM entering oversold with the SPY not there yet but close. If you look at more standard momemtum indicators like MACD or Stochastics they are not even close to oversold yet. So overall, although we may be a near term bounce, it appears there is more selling to come until things settle down.

In the intermediate term I am getting concerned in small caps. If you look at the weekly chart of IWM below from the 2009 lows, it has beoken its 12 week moving average (although not yet on a closing basis) and looks ready to test its long term bullish trendline near $72. Although the weekly action eliminates the volatility of the day to day action, it does give us a hint at what trend may be developing and, lilke I said already, this is worrisome.