One ugly day

Dow tumbled 344, decliners over advancers 5-1 and NAZ was down 74, making for the kind of day that has become routine this year. NYSE volume continues modest at 1.3B. The S&P 500 FINANCIALS INDEX got slapped hard today, down 14 to 281, just above 277 reached 2 days after the 232 low set on Jul 15. Financials dropped 5% after bond's biggest investor, Bill Gross, warned of a "financial tsunami" (mentioned in my AM post & linked on his name here).

Crude oil for October fell to settle under $108. This was oil's 5th straight decline & the lowest settlement price since April 4. The Alerian MLP index dropped 3 to 264s approaching its 2 year low, 258, reached last month.

CLV08.NYM

.. Crude Oil Oct 08

... 107.99

... 1.36 (1.2%)

Demand destruction is a phrase used a lot by analysts in Asia, thanks to night time visits with them on Asia-CNBC. It is what it sounds like, high prices for commodities destroys demand. This is most visible with oil, but affects all commodities after their recent fall from their price peaks. They say this could be the fundamental cause for the fall in oil prices & the rest of the commodity group.

Earlier this year, analysts were talking about 1270 on the S&P 500 being an important support line. The graph below shows that it has held fairly well, allowing for limited minor dips below in the last couple of months. Today at 1236 it's testing the soggy floor (1200+) again. But this time the S&P 500 has declined for 4 consecutive days, worst performance since Jan.

S&P 500 --- YTD

With all the attention paid to oil & weather recently, don't forget about the mortgage mess & other problems with the large financial institutions. Lehman (LEH) is trying to wriggle out of its mortgage portfolio so as to get a better price for selling itself to an outsider. With the low quality of these assets, this could drag on for days or even weeks (not a help to other financials).

•Lehman Mulls Plan to Shift $32 Billion of Mortgage Assets to a `Bad Bank'