The magic words for today is "HEDGE FUND LIQUIDATION."
Carry trades all around the world are collapsing. The resulting unwind is killing hedge fund clients all around the world. I am sure margin clerks were working overtime last night and came in extra early today to sell out their clients. It also doesn't help that LIBOR keeps rising.
The biggest carry trades AUDJPY and EURJPY got mauled yesterday and are trying to make a comeback today. This is little to late as margin clerks are going to work.
The German DAX which broke its 200DMA yesterday and rallied strongly above it by close is now firmly below that mark once again. The FTSE and CAC are broken short term and need to find some support. I am firmly in the camp that these markets will see an "Air Pocket." in the coming days. Days like this make me look for whole numbers in index values, DAX at 5000, FTSE at 4500, CAC at 3000, and SPX at 1000. Those are all some 7%-12% away.
This market is busted at the moment. Is it broken is the question? The markers will probably try to rally to get the SPX above the Flash Crash lows but like the DAX, the SPX is also belows its 200DMA which is very problematic. Any rally will be and should be sold.
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