Stocks Trip Over Charts; Nasdaq Pummeled

(Updated with commentary, stock prices.)

NEW YORK (TheStreet) -- Stocks accelerated and closed significantly lower Wednesday as the dollar strengthened. The major indices tripped on technical levels, building on selling that began after new-home sales and mortgage applications fell.

Metals, energy and tech stocks were among those feeling the brunt of risk aversion, with the Nasdaq faring the worst of the major averages, down 56.48 points, or 2.7%, at 2059.61.

The Dow Jones Industrial Average fell 119.48 points, or 1.2%, to 9762.69, while the S&P 500 lost 20.78 points, or 2%, to 1042.63, a level that would make it negative for the month of October.

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"Most of today's negative action has been dollar-related, and the tripping of technical levels that fired off another short trade or a sell order or something like that -- we're right in the zone where you would expect to trigger selling," says Marc Pado, U.S. market strategist at Cantor Fitzgerald. "The flip of the dollar trade is to unwind or cover your short in the dollar and sell commodities and the Russell 2000, and so this has produced a break of the uptrend line since the March lows."

If you look at the groups that have been the strength of the rally -- energy, materials and tech, for instance -- you can see how they are affected by the reverse trade. "And really the leadership of the entire move has been technology, and they're getting just crushed today," he said.

"What it amounts to is that breaking an uptrend line means that the momentum has shifted, or you've fully discounted the good news -- we started seeing that several days ago," he added.

"We've seen about a 5% drop since the high last week, and [the major averages] have broken below the 50-day moving average for the first time since July -- but this is also the fifth time we've seen a 5% retracement or more since the lows in March," says Anu Sharma, managing director of the market intelligence desk at Nasdaq.

Losses accelerated after data showed new-home sales fell by 3.6% in September to 402,000, vs. a downwardly revised 417,000 in August. The September figure fell short of expectations, which were for an increase to 440,000. There is a 7.5 month supply, up from 7.3 months a month prior.

Earlier in the morning, the Mortgage Bankers Association said home loan demand as measured by mortgage application volume fell 12.3% last week, as the deadline for the $8,000 tax credit would likely come too soon for most buyers putting in new applications.

"It definitely has an effect; it's the first time it's shown a downward kick for new-home sales in five reports," says Sharma. "But the biggest concern here is that we've had a tremendous earnings season -- 85% of S&P companies have beat expectations -- but for the most part the market already worked in all of these numbers and is looking at the economic data instead.

"Traders are digesting the fact that economic growth will be slow at best," says Sharma. "This tremendous move has probably gotten ahead of what economic growth should dictate."

But, writes James De Porre, founder and CEO of Shark Asset Management and a RealMoney.com contributor, thanks to this latest dip, "we are oversold enough now that market players are looking for a bounce and have made a couple of forays." DePorre adds that a bounce would likely favor bigger, more conservative stocks first.