COMMODITY MARKETS TUMBLE ON GLOBAL STOCK SELLING -- REBOUND IN FINANCIALS, HOWEVER, STEADIES MARKET IN AFTERNOON -- OVERSOLD S&P 500 BOUNCES OFF ITS MARCH LOW SUGGESTING THE WORST MAY BE OVER FOR NOW

CRB INDEX TUMBLES ... The global stock rout spilled over to the commodity pits. The CRB Index fell 10 points to close well under its 200-day average (Chart 1). Several newswires suggested that investors were selling commodities to finance stock losses. Earlier today, I showed sizeable losses in copper and gold (and a breakdown in gold shares). Silver also had an especially bad day. Chart 2 shows the Silver iShares falling 6% to a new 2007 on very heavy volume. Gold lost $21. I recently suggested that one of the side effects of rising volatility is that all markets become closely correlated. That includes stocks and commodities. It also includes falling foreign currencies and falling bond yields. And it most certainly includes foreign stocks which actually started today's heavy market selling. Most global markets are now trading below their 200-day moving averages. I also showed earlier today that the Japanese yen continued to soar against all foreign currencies, especially the Australian Dollar which lost 5%. That contributed to heavy selling of foreign currencies and foreign stocks. Some of the hardest hit markets were in Australia, Brazil, Singapore, and South Korea. The good news is that the market have finally reached potential support which could support a rally attempt.

Chart 1

Chart 2

BOUNCE IN FINANCIALS STEADIES MARKET... One of the factors that helped stem the tide of today's early losses was a rebound in financial shares. In fact, financials were the day's strongest sector (for a change). The hourly bars in Chart 3 show the Financial SPDR (XLF) gaining 3% today. And it did so on rising volume. Although it's only one day's action, any sign of stability in that beaten-down group might be enough to help stabilize the market. Banks gained 4.7% while brokers rose 3.8%. That's a pleasant change. A 2% rally in small caps is another good sign that the worst may be over for now. So is the fact that several major stock indexes have reached potential chart support.

Chart 3

S&P 500 BOUNCES OFF MARCH LOW... As you know, I've been calling for a 10-12% correction in the S&P 500 and a likely retest of its March low. The good news is that both of those downside targets have now been achieved. Plus, the market is now in a bona fide oversold condition. The daily bars in Chart 4 show the S&P closing slightly higher today after testing its March low. It also tested another important support line. The green line just below the price bars is the 400-day (or 20 month moving average) that I've described before as an important support line that would probably be tested. The S&P touched that line earlier today before rebounding. The daily stochastic lines are also in oversold territory. A couple of weeks ago (August 2) I complained that the market wasn't ready for a rebound until the "weekly" stochastic lines reached oversold territory. Chart 5 shows that they have. That chart also shows how well the 80-week (400-day) moving average has contained previous market downturns (blue line). All of those factors combined suggest to me that things have gotten a bit overdone on the downside and the market may be ready for a relief rally. That doesn't mean that the market is in good shape. A lot of technical damage has been done to charts all over the world. The market will have to do a lot to repair that damage. Today's market action suggests, however, that the worst may be over for now.

Chart 4

Chart 5