Despite some solid earnings reported by blue chips, including Texas Instruments (TXN), 3M (MMM) and DuPont (DD), all announced prior to the opening, stocks closed sharply lower, with the Dow Jones Industrial Average (DJI) falling below 11,000.

The catalyst for the broad selling was the downgrade of Greece’s debt to “junk” status by Standard & Poor’s, and Portugal’s debt was reduced to A-, which made investors nervous that the monetary crisis in Greece was spreading to other members of the European Union.

The resulting weakness in the euro, which closed at 1.3179 against the U.S. dollar, sent European stocks into a broad slide, as the currency fell to the lowest level in several years.

Commodities, with the exception of gold, fell sharply. The CRB Commodity Index fell 1.9% and gold gained 0.7% as traders fled to the metal as a safe haven.

Along with solid earnings from blue chips, there was other favorable news about the U.S. economy. The S&P/Case-Shiller Home Price Index made its first gain since 2006, with a 0.6% year-over-year increase. And consumer confidence climbed in April to 57.9, its highest reading since August 2008, and higher than the estimate of 53.5.

Bank stocks were weak throughout the day as Goldman Sachs’s (GS) key executives’ testimony focused on their role in the financial crisis. Morgan Stanley (MS) fell 3.3%, JPMorgan Chase (JPM) was down 3.4%, and Citigroup (C) fell 5.9%. But the focus of the day, Goldman, gained 0.66%, up $1.01 to $152.95.

Treasury bonds were strong. The benchmark 10-year note gained a point, dropping its yield to below 3.7%.

At the close, the Dow was off 213 points to 10,992, the S&P 500 (SPX) lost 28 points to 1,184, and the Nasdaq (NASD) fell 51 points to 2,471. 

The NYSE’s volume rose to 1.68 billion shares with decliners ahead of advancers by 5-to-1. On the Nasdaq, decliners were ahead by more than 4-to-1 on volume of 787 million shares.

As noted, commodities fell sharply yesterday on the dollar’s strength against the euro. June crude oil fell $1.76 to $82.44 a barrel, and the Energy Select Sector SPDR (XLE) lost $1.90, closing at $59.98. But, as stated above, gold rallied. 

The June gold contract rose $8.20 to $1,161.70 an ounce. The PHLX Gold/Silver Sector Index (XAU) fell 0.6 points to 171.89.

What the Markets Are Saying

Even though the rating cuts by S&P may not have been all that unexpected (considering the amount of discussion over the debt of Greece and others), the markets seemed stunned by yesterday’s downgrades. As mentioned many times, by me and other technicians, it is exactly this sort of bad news that will often smack into overbought markets and be the catalyst for a more reasonable re-evaluation of prices.

Yesterday’s drive lower took all of the major indices below their initial support — the lows of last week — in just one session. It also closed two of the major indices below their 20-day moving averages. For the Dow that number was 11,032, and for the S&P 500 it was 1,195. The Nasdaq was the only index not crushing its 20-day at 2,468, but it closed just 3 points above it. 

The NYSE’s volume picked up sharply with yesterday’s selling pulling in over 1.8 billion shares, when for weeks the volume on the Big Board was hardly able to pull in over 1 billion shares. And breadth moved to an impressive 5-to-1 — again much above the average breadth (negative or positive) over the last two months.

The CBOE Volatility Index (VIX) rose to 22.81 from its low of 15.58 at this time last week. All of our internal indicators have now flashed a trading sell signal.

So yesterday’s heavy selling will more than likely lead to more selling until prices come more in line with reality. With the smashing of the 20-day moving averages (the Nasdaq will likely close under it today), the next support zone for each of the major indices are the lows of March 25 to April 8. For the Dow that is around 10,845, for the S&P 500 it is 1,165 to 1,167 (50-day moving average), and for Nasdaq it is 2,380 (50-day moving average) to 2,385.

Below those levels there are many bands of support spread over months, so there is no rush to get into that now. And if we get another broad sell-off today, we may even see a bounce before the end of the week since there appear to be bulls just waiting for the slightest weakness to jump into a pullback.

But let’s not rush into any buying until the market’s sellers have exhausted themselves. For now, smart traders and investors will hold onto their cash. Some traders may want to try the short side of the market — even at the disdain of our legislators who yesterday during the Goldman hearings seemed to think that shorting was anti-American. They are wrong; losing money is anti-American.

Today’s Trading Landscape

Earnings to be reported before the opening include: 1-800-Flowers, ACCO Brands, Adolor, Allegheny Technologies, American Commercial Lines, AmeriGas Partners, AOL, AudioCodes, Barrick Gold, Berry Petroleum, BioCryst Pharmaceuticals, Broadview Security, Canadian Pacific, Carter Holdings, CDC Software, CGI Group, Comcast, Corning, CryoLife, Cullen/Frost Bankers, Dice Holdings, Dixie Group, Dollar Thrifty Automotive Group, Dow Chemical, DSP Group, EQT Corp., Ethan Allen, Euronet, FirstService, Franklin Resources, General Dynamics, Goodyear Tire, Hecla Mining, Hess, Host Hotels, InterActive, Inverness Medical, Invesco, JetBlue Airways, JMP Group, Jones Apparel, LeCroy, Lumber Liquidators, M/I Homes, MagneTek, MarketAxess, Martha Stewart, MeadWestvaco, Medco Health Solutions, Melco Crown Entertainment, Meredith, Ness Technologies, Newfield Exploration, Northrop Grumman, Nu Skin, Old Dominion Freight Line, Owens Corning, P.F. Chang’s, Praxair, Radvision, Regis, Rockwell Automation, Royal Caribbean, Royal Dutch Shell, RPC, RTI Biologics, SAP AG, Sealed Air, SEI Investments, Silicon Labs, Southern Co., Spectranetics, Sprint Nextel, Stratasys, The Medicines Co., Thermo Fisher Scientific, Transcend Services, Tyco Electronics, UGI Corp, United Microelectronics, Universal Stainless/Alloy, Ventas, ViroPharma, WellPoint, Wintrust Financial, Wyndham Worldwide.

Earnings to be reported during trading hours include: Energen and Susquehanna Bancshares.

Earnings to be reported after the close include: ACE Limited, Advance America Cash, Advent Software, Akamai Technologies, Allstate, American Railcar Industries, Annaly Mortgage, Aspen Insurance, AvalonBay, AXT, Baidu.com, Baldor Electric, Beckman Coulter, Brandywine Realty, Cabot, Cabot Oil & Gas, Cadence Design, California Water, CardioNet, CB Richard Ellis, CBL & Assoc. Celera Genomics, Cerner, Cincinnati Financial, Cliffs Natural Resources, Compellent Technologies, ComScore, Core Labs, Covance, Covenant Transport, Crown Castle, DivX, Duke Realty, Dynamics Research, EastGroup, Enbridge Energy, Encore Wire, Entropic Communications, Epicor Software, Equifax, Equity Residential, Everest Re, Express Scripts, Famous Dave’s, First Solar, FMC Technologies, Fortinet, General Maritime, Goldcorp, Green Mountain Coffee Roasters, GSI Commerce, Harris, Helix Energy, Highwoods Properties, Horace Mann Educators, Illumina, InterDigital Communications, Interface, International Coal, Internet Brands, iRobot, Itron, Kaiser Aluminum, Key Energy, Kilroy Realty, Kirby Corp, LHC Group, Lincoln National, Logitech International SA, LogMeIn, LoopNet, LSI Logic, ManTech, Meritage, Metabolix, Methanex, Morningstar, Neurocrine Biosciences, Neustar, Newport, Oceaneering International, Odyssey Healthcare, Oil States, ONEOK, ONEOK Partners, Openwave, O’Reilly Automotive, Orthofix, Owens-Illinois, Power Integrations, RailAmerica, Realty Income, Rightnow Technologies, Ryland Group, Sangamo BioSci, Selective Insurance, Service Corp., Shutterfly, Spherion, Stericycle, Sun Healthcare, Superior Energy Services, SurModics, Taleo, Tessera Technologies, Tetra Tech, Tollgrade, Trinity Industries, TriQuint Semiconductor, Triumph Group, Tyler Technology, US Auto Parts, Varian Medical, VeriSign, Visa, Walter Energy, WCA Waste, Whiting Petroleum, Willis Group and Xilinx.

Economic reports due: MBA purchase applications, EIA petroleum status report and FOMC meeting announcement (the consensus expects interest rates of 0% to 0.25%).

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