BROAD SELLING HITS WALL STREET -- VOLUME SURGES -- NEW LOWS EXPAND ON NYSE -- GOLD AND SILVER SURGE IN FLIGHT TO SAFETY -- U.S. DOLLAR INDEX RETREATS -- OIL REBOUNDS

STOCKS GET WALLOPED AGAIN... Today's Market Message was written by Arthur Hill. John Murphy will return tomorrow. - Editor

Another broad sell-off took hold on Wall Street Wednesday. All major index ETFs were down sharply with the Nasdaq 100 ETF (QQQQ) losing over 5% and the S&P 500 declining 4.71%. All sectors were lower with the Financials SPDR (XLF) falling over 9% and the Technology SPDR (XLK) losing over 5%. NYSE volume broke the 9 billion mark and Nasdaq volume exceeded 3 billion. Chart 1 shows QQQQ plunging below 41 by the close and RSI finishing at 26. Oversold RSI is about the only thing positive to report, but the ETF remains in the falling knife category. Chart 2 shows the Russell 2000 ETF (IWM) falling below 68 with the next support area around 65. RSI has yet to reach oversold levels and this ETF could have further to fall.

Chart 1

Chart 2

SPY VOLUME SURGES... Chart 3 shows the S&P 500 ETF (SPY) over the last 12 months with volume. Volume surges above 400 million shares are shown with the blue arrows. The overall trend is clearly down, but these volume surges occurred near reaction lows in November, January, March and July. It appears that these volume surges mark some sort of capitulation or selling climax. With a high-volume decline over the last few days, SPY volume once again surged above 400 million shares. Even though SPY remains in the falling knife category, it is getting oversold and ripe for a bounce or consolidation.

Chart 3

NET NEW HIGHS REACH EXTREMES... Chart 4 shows the NY Composite with Net New Highs on a daily basis. Net New Highs equals new 52-week highs less new 52-week lows. Net New Highs turned sharply negative as the decline accelerated over the last few weeks. The indicator dipped below --1000 over the last two days and is at its lowest level since mid July. Incidentally, the July low occurred when Net New Highs dipped below --1000. I am not making the case for a bottom now, but selling pressure is reaching an extreme that could give way to an oversold bounce. As with SPY above, the market as a whole remains in the falling knife category.

Chart 4

Chart 5 shows the Nasdaq with Net New Highs on a daily basis. Net New Highs dipped to around --500 in July and then moved back to the zero area in mid August. The September decline pushed the indicator back towards its July lows over the last two days. Of note, selling pressure in July and September was more intense in NYSE stocks as Net New Highs dipped below the January lows. Net New Highs for the Nasdaq remain well above their January lows, and they are even above the July lows. A small positive divergence could be brewing as the Nasdaq broke below the support zone from the 2008 lows.

Chart 5

GOLD SURGES IN FLIGHT TO SAFETY... The streetTRACKS Gold Trust (GLD) surged over 10% and gold futures surged to $850 per ounce. Another flight to safety spurred buying in gold. With investors worried about bank deposits, gold attracted buying interest as the hardest of hard assets. In addition, a sharp decline in the U.S. Dollar Index and a rebound in oil helped the bullish case for bullion. The combination stoked the bullion bulls into a stampede. Chart 6 shows the streetTRACKS Gold Trust moving back to broken support around 84-85. The falling 200-day moving average is just above 87.5 and there is considerable resistance in the 85-87.5 area. The iShares Silver Trust (SLV) also got into the action by jumping over 15%. Bloomberg reported that today's advance was the largest since 1979. Are the Hunts still around? On Chart 7, SLV declined over 40% from mid July to mid September and became quite oversold. Today's surge is impressive, but the ETF remains well below its falling 200-day moving average and broken support. Chart 8 shows the Gold Miners ETF (GDX) also surging with a big move on Wednesday. GDX became oversold after declining over 40%. Today's surge carried GDX to the July trend line and the ETF remains well below the falling 200-day moving average.

Chart 6

Chart 7

Chart 8

DOLLAR FALLS AS OIL REBOUNDS... The U.S. Dollar Index ($USD) dropped sharply with a decline greater than 1%. Chart 9 shows the index surging above 80 last week and then falling back towards 78 this week. The index became overextended after the run from the low 70s to 80. Some sort of pullback or consolidation could be expected. A 50% retracement of the advance would carry the index back to around 76. Further down, there is also support from broken resistance and the rising 200-day moving average around 74-74.5.

Chart 9

West Texas Intermediate Crude ($WTIC) finally got an oversold bounce with a 3% gain on Wednesday. Oil was one of the most oversold commodities around after plunging over 35% from mid July to mid September. Such declines are atypical for mere corrections. In other words, such a gut-wrenching decline signals the start of a long-term downtrend. The August consolidation, falling 200-day moving average and 50-day moving average converge to mark a resistance zone around 110-120. Any bounce from here would be deemed an oversold bounce and not expected to last long.

Chart 10