We witnessed just how nervous this market is this afternoon. The markets opened this morning trading upward; SPX reached $1526 before a slow decline began that accelerated as the afternoon wore on with SPX closing at its low for the day, $1488, down $28. RUT lost $20 to close at $896. And trading volume spiked up with 2.8 billion shares of the S&P stocks. Trading on the NYSE was up 19% and volume increased 21% on NASDAQ. I took a look at VIX this morning and noted that it was up to about 15%, which isn't really too high, but it seemed a little ominous. Of course, it continued to rise as the markets sold off, ending the day at 19%, up almost 5 points.

Most analysts believe the elections in Italy triggered this slide because the election results increased the probability of Italy reneging on its tough measures to get their financial house in order. The fear is that recession in Europe will spread globally. Other analysts attribute at least part of the slide to the impending sequester deadline on Friday. The administration is predicting all kinds of dire consequences of sequestration, loss of TSA employees and air traffic controllers at the airports, fewer border agents, and on and on. Our government currently spends about 3.5 trillion dollars and the sequester will cut 85 billion dollars. To put this in perspective, this is equivalent to my business budget being 3.5 million dollars and I am asked to cut 85 thousand dollars out of my spending. For anyone who has ever run an organization of any size, this is trivial. It is highly unlikely one would have to even cut any people's jobs to get 85k out of a 3.5M budget. And we aren't talking about fine-tuned organizations here. This is the Federal government - there is waste everywhere. We are witnessing political theater at its best. The politicians are trying to scare voters into thinking there is no reasonable choice - we can't reduce spending; we must raise taxes! We can't wait! It's an emergency! OK, I'll put my soapbox away.

Back to the markets, the question on our minds is: how far will it drop? SPX traded right down close to support at $1485. So I will be watching the open tomorrow to see if it breaks below $1485; the next well defined support level is around $1475. If we break that level, it gets pretty ugly, threatening to wipe out all of this year's gains. The SPX 50 dma is at $1477 and the 200 dma is at $1410. A correction of 10% from the high at $1530 would wipe out all of this year's gains, taking us down to $1377, a level last seen in mid-November. I don't think there is any rational basis for a correction of that magnitude, but one can lose a lot of money talking about what's rational.

The market slide is helping my condor positions; the March iron condor on RUT stands at a P/L of +$766 or +4% with position delta = -$8 and position theta = +$114 (for 20 contracts). Fortunately, my put spreads are down at 810/820, still about $75 OTM. I'm sure CNBC will have a full cast of doomsayers on tomorrow. I will watch Doomsday Preppers this evening to prepare...