The rally at the end of the day today masked what was actually a very, very weak day overall. Apparently some rebalancing added some buy orders and rallied the indexes late in the day, however the advance decline line was solidly negative as was volume.

It's almost unbelievable to me that this market can't pick itself up at all after it's fallen over 45% in 12 months. But then again, this isn't like anything any of us have lived through before, unless you're well over 80 years old. 

For the past several years I've been predicting that a deflationary, "depression era like" economic climate would hit the US late in this decade. During that time I often wondered what things would look like. How would the market behave? Would people really stop spending? What would the Fed's role be? Could I be completely off base with my conclusions? 

The one thing I WAS certain of, and I said this to Tim Wood many times over the last few years, was that we would see things we had never witnessed before. We certainly have and I believe we'll continue to do so. The record number of new lows on the NYSE on October 10th should be a record that's never broken. Over 90% new lows! The old record I believe was about 58%.
 
The current market action may fall into that category before it's over with. A collapse from these levels that blows through 760 on the S&P and we'll be experiencing price destruction never before witnessed on a major index in such a short time frame. There's no play book for that, and the way these markets are acting it seems like a real possibility.

As a result you must be very careful. If this really is depression era like liquidation then oversold won't matter much. Cash will be king as it gains value everyday the liquidation continues. At some point that may change, but not just yet.