Small caps continue to yo-yo in the red, as better-than-anticipated existing home sales help to quell selling earlier; but, fears of a global recession continue to grip small caps. At 12:43 p.m. ET, the Russell 2000 (NYSE:IWM) was down 15.32, or 3%, at 474.65.

Small caps started the day sharply lower, but not as bad as futures had indicated. After sheer panic spread through overseas markets on economic slowdowns and lackluster corporate earnings, fear gauges broke open in pre-market trading, causing stocks to plunge so sharply (550 points) that futures trading was halted. Overseas markets were on average down 10% across the board. After Sony halved its outlook, Asia swooned. Markets also toppled on news that Britain’s economy grew at a slower-than-expected pace of 0.5% in the third quarter and Korea screeched to its slowest pace in four years.

On the dismal news that drives these painful sell offs, BMO Capital Markets Andy Busch says the U.S. is the sole entity adequately large and coordinated enough to deal with the burgeoning issues surrounding the credit crisis, and “it's not doing a great job,” he said. “This means the rest of the world cascades down into the madness of financial anarchy that currently exists. We have massive hedge fund and bank deleveraging at its most extreme. It clearly is not over.”

However, Busch says this weekend the U.S. Treasury should inject another dose of liquidity into markets with a potential focus on U.S. auto markers. “Additionally, the G20 meeting on November 15 could bring the development of new financial architecture to alleviate stress levels,” he said. “Unfortunately, this all takes time and the markets don't wait.”
 
Stocks pared losses after existing home sales clocked in better than expected. Existing home sales came in at 5.18 million units, substantially above the forecast of 4.98 million. The September rise of 5.5% marked the highest percentage rise since July 2003 and the rate was the best since August 2007. After a bleak report on foreclosures Thursday, the existing home sales report was welcome news on the housing market; however it most likely doesn’t mark the beginnings of a bottom.

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