After a gap-down open, the bulls looked like they were going to put together an oversold bounce attempt, but they were unable to overcome strength in the U.S. dollar. The euro fell sharply against the dollar as less hawkish comments by the European Central Bank this morning caused commodities to spike lower, and funds were forced to unwind short dollar/long oil-and-commodities trades that have worked for so long.
The commodities markets were under pressure all day, but losses in oil and silver accelerated sharply this afternoon as both fell about 10% while gold got knocked down by about 3%.
The futures market is highly leveraged, so when commodities fall this far this fast, there is likely to be some forced selling in more liquid markets, such as equities, in order to cover losses. The biggest worry now is that the margin selling is not yet finished. If the dollar remains strong and there is no bounce in commodities, the downward pressure is going to be significant, even though we are already extremely oversold.
There was a little better action in momentum stocks and small caps, mostly from bounces in stocks that broke down badly this week. We were overdue for some sort of a relief rally, but so far it has not been very impressive at all.
At this juncture, the bears may have the edge, but it seems to me this sell-off has about run its course.