Dow Down 504 Points, Worst Day Since 9/11 Terrorist Attacks

The Dow Jones Industrial Average took its worst beating in almost seven years after Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy and insurance giant American International Group Inc. scurried to raise capital even as its market value was axed by distraught investors. It was the worst day on Wall Street since the 9/11 attacks.

The Dow was in complete free fall on Monday as it plunged 504.48 points, or 4.4 percent, to 10,917.51. The S&P 500 gave away 57.89 points, or 4.6 percent, to 1,193.81. The Nasdaq Composite dropped 81.36 points, or 3.6 percent, to 2,179.91.

Nick Perry, writing on his Trading Floor blog, talks about being nervous:

As it stands now, the Dow Jones Industrial Average (DJIA), S&P 500 (SPX), and Nasdaq Composite (COMP) are flirting with the July lows. Earlier I said I thought it was a good sign that the indices were holding here amid the news. However, I think I now have to temper my enthusiasm a bit as I have seen those same thoughts echoed on television and in print. The fact that this is a seemingly widespread view makes me nervous that too many are watching (and hoping) for the same thing. That sets the stage for a lot of pent up selling if we do see a break of the lows.

With that that in mind, I am wondering if we do in fact need to see a break of the July lows. From a chart perspective that would extend the downtrend that has been in place since October 2007 but it could finally allow us to hit that capitulation point where the weak hands finally throw in the towel. I know it seems counter-intuitive to "want" to see a breakdown, and maybe I am dead wrong about it, but I think we need to break this pattern of slow bleeds. A sharp sell off could help achieve that.

"Fear is in charge," money manager Henry Herrmann, president and chief executive officer of Waddell & Reed Financial Inc. in Overland Park, Kansas, told Bloomberg. "This blows another hole in the banking system's ability to extend credit."