Stocks were pummeled again yesterday, as the Dow Jones Industrial Average fell 5.5% and the S&P 500 lost 6.66% in an avalanche of programmed selling. Volume shot to its highest level in two years on the NYSE as 2.5 billion shares traded with decliners outnumbering advancers by 16-to-1. Gold futures soared to a new high of $1,710.20 as investors tried to find haven against the hurricane of sell orders. But strangely one of the reasons for the market’s sell-off was supposed to be the downgrading by S&P ofU.S.debt, and yet Treasury bonds were winners with the 10-year yield falling 0.2 percentage points.

The big increase in volume, which was more than double the average volume of the year, was attributed by the financial press to hedge funds and institutional accounts throwing blocks of stock into the market without regard to price, quality or outlook. And there was talk of the “flash crash” and even the possibility of another crash like 2008, as the Russell 2000 index of small caps was hit with an 8.9% decline. Banks were especially hard hit with Bank of America (NYSE:BAC) plunging 20% and Citigroup (NYSE:C) down over 16%.

Yesterday’s plunge pierced the minimum target of 1,143 on the S&P 500 that resulted from last week’s neckline break. In just a day, the broad-based index even fell into last summer’s trading range of 1,040 to 1,130 that we discussed as a possible downside support zone. 

But with the VIX closing at 48, its high of the day, which surpasses last April’s closing high by several points, there is no evidence of any meaningful buying, and so the near-term direction is lower. 

A number of interest is the low of last year at 1,011, and just above that the number 1,018, which represents a 50% retracement of the entire bull market from its March 2009 low to the recent high. With little else to go on and a 50% Fibonacci number at the bottom of last summer’s trading zone, that zone is still our most logical area from which a consolidation could begin.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

• See Serge Berger’s Daily Market Outlook: Relief Rally Could Provide Bulls a Quick Trade
• See Sam Collins’ Trade of the Day: A 9% Dividend to Help Ease the Market Pain
• See Serge Berger’s Trade of the Day: One Sector Worth Going Long