WOW can you spell UGLY! Yesterday was one of the worst days for the stock market in years. It brought back not so fond memories of other huge sell-offs in the market, most recently September of 2001, actually 9-11-2001. That’s a date we all remember, most importantly for all the innocent Americans that died by the cowardly hand of Bin Laden and his band of cowardly reptilec followers. In 1987 & 1989 during the big sell-offs each coming in the month October I was working as a stock broker. I can still recall the fear that created a wave of panic selling. Down 400 points by lunch time. That was huge, the Dow was only sitting at 2500-2800 at the time. That would equate to about a 1600 pt drop at todays level!

I learned something from each one of these sell-offs. Those who paniced and sold their positions lost big. Those who didn’t have stops or trailing stops protecting their positions got hurt. Those who viewed the sell-off as an opportunity and selectivly added quality stocks to their portfolio’s made out like bandits.

Tuesday’s action began early with a 9% collapse in the Chinese market and spread around the world. Emerging markets were the hardest hit. The selling spread from Asia to Europe and then to North and Latin America.

The Nasdaq 100 Shares (QQQQ) plunged 4.1% on the heaviest volume in months. It also undercut its late January low. The Dow Diamonds (DIA) fell 3.7% and shattered initial support levels — also on huge volume. The S&P 500 SPDRs (SPY) lost 3.9% and undercut both its 50-day average and its January. It’s not a pretty picture. All market sectors and industry groups fell. The only winner was Treasury bonds which soared in a massive flight to safety.

In the chart below, the weekly MACD lines for the Dow have turned negative for the first time since last May. That suggests that there’s likely more downside action to come (hopefully after a relief bounce). The horizontal lines on the chart below are Fibonacci retracement lines. They should be kept in mind as possible support levels. The first level of support is at the 38% retracement level near 12000. A second one is the 50% retracement level near 11754. I suspect that the Dow will fall somewhere between those two lines.