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Worst Day of Year for Dow, S&P

This was an unusual day for this year: stocks started selling offright at the open and never recovered. Is that unusual? Yes, for this year. The usual pattern has been to bottom within an hour after the open, or at most by the European close, then rally. That didn't happen today.

The unemployed look for job opportunities at the South Florida Workforce center in Miami, Florida.
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The unemployed look for job opportunities at the South Florida Workforce center in Miami, Florida.

Indeed, declines of almost any kind—let alone four days—is unusual. The Dow has had only one other 200-point decline all year. Another unusual feature of today's selloff: even defensive names (Kroger , Coke , Colgate ) got hit.

Another unusual feature of today's trading: volume! The NYSE floor traded 970 million shares; most days this year it has done between 700-800 million. This is largely because volatility picked up; when this happens high-frequency trading computers literally "kick in" and begin trading more.

The most important event today in the U.S. markets was a technical one: the S&P 500 breached the 50-day moving average for the first time since mid-December around 11:50 AM ET; the SPDR S&P 500 ETF, the largest ETF in the world, immediately spiked in volume, sold off and did not recover.

The current, 4-day selloff in the U.S. began after the Fed FOMC minutes last Wednesday (where there was disappointment about the lack of comment on QE3), then resumed on Friday after the disappointing nonfarm payroll numbers, and have been exacerbated by the spike up in Italian and Spanish bond yields. Some nervousness about earnings is also likely playing into the mix.

The spike up in Italian and Spanish bond yields is important. The bond vigilantes are back in Europe, arguing that the ECB (and the Fed) has only delayed the much-needed restructuring of global debt.

Of more immediate concern is the massive positions in European debt the banks hold. Remember, the ECB expanded its balance sheet by almost 1 trillion euros in the past 3 months by making cheap loans available to European banks; a good chunk of that money banks borrowed went into the purchase of sovereign bonds. Those banks are now sitting on big losses on those bonds.

What's next? Watch the action in bonds...they were supposed to sell off, but for the last two days, the biggest bond ETF in the U.S., the iShares Barclay Bond ETF , has popped up, yields dropped, on big volume.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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