A worse than expected report on new home sales fueled fears that the economic recovery may not be as robust as investors have hoped. Stock markets around the world were sinking. Major indices in the U.S. like the S&P 500 and the NASDAQ composite were flirting with a breakdown under technical support at their 50-day moving average. The U.S. dollar extended its gains to four days in a row but today's gain was very minor. Commodities were mixed. Gold was only fractionally lower at $1,034.80 an ounce. Crude oil was seeing some profit taking with a 1.9% decline toward $78.00 a barrel.

Asian markets were mostly down. The Japanese NIKKEI index fell 1.3% to a two-week low at 10,075. The NIKKEI is approaching potential round-number support at the 10,000 level. Honda Motors was a standout to the upside today. The Hong Kong Hang Seng fell sharply for the second day in a row with a 1.8% decline. The Hang Seng index closed below the 22,000 level. The Chinese Shanghai index bucked the trend lower and managed to erase earlier losses to close up 0.33% at 3,031.

The declines in Europe were more dramatic and seem to be accelerating. France and Germany are now down five days in a row. The French CAC-40 lost 2.0%. The German DAX gave up 1.9%. The English FTSE index fell 2.1% and is on track to post its first monthly decline since June.

Wednesday has been a relatively quiet news day. The big story was the new home sales report. Economists were forecasting a rise from 417,000 in August to an annual sales pace of 440,000. The Commerce Department said new home sales actually fell 3.6% in September to a pace of 402,000. This was the first monthly decline in six months and many analysts are blaming it on the expiration of the homebuyer tax credit, which ends soon. New home prices were down more than 9% from a year ago with the median price hitting $204,800. This was still an improvement from August prices at $199,900. The inventory of new homes has fallen to its lowest level in 27 years. Further complicating the real estate story was a report from the mortgage bankers association who said mortgage applications fell 12.3% last week. This was the third weekly decline in a row.

The Commerce Department also released a report on durable goods orders. The report for September durable goods orders came in +1.0%. This was a bounce back from a 2.6% decline in August and marks the fourth gain in the last six months. The markets want to see confirmation that the U.S. has truly come out of the recession. We'll see the early third quarter GDP report tomorrow. Most economists are expecting the U.S. growth rate to hit +3.2%. Any positive reading would officially signal the end of the recession for the U.S. Goldman Sachs released their opinion on U.S. GDP this morning and expect the economy to have grown at a +2.7% pace. Lately Goldman Sachs has been right on the money with their economic estimates.

Currently the S&P 500 index is off about 1% and testing support near the 1,050 level, its rising 50-dma, and its trendline off the March lows. The NASDAQ composite is down about 1.4% and testing its 50-dma. The small cap Russell 2000 index is under performing with a 1.7% decline. The Russell is now down four days in a row and down six out of the last seven sessions.

Let's take a quick look at charts for the major averages:

Chart of the S&P 500:

Chart of the NASDAQ:

Chart of the Dow Industrials:

Chart of the Russell 2000 index:

Chart of the U.S. dollar ETF (UUP):

A quick glance at the OptionInvestor.com play list reveals it's not a great day for our bullish positions but most of our current candidates are somewhat defensive. Our call play on the VIX is doing well with the volatility index up 5% today. Most of our put candidates are seeing declines. FUQI has exceeded our profit target at $20.50. PSYS has also exceeded our profit targets with a 25% decline today. Meanwhile RIMM has continued to fall and hit new relative lows and our trigger to buy puts this morning.