NEW YORK (TheStreet) -- Stocks extended lows in the final hour of trading on Friday, putting benchmark indexes solidly on track for their worst week in nearly four years. Wall Street was in the red as a continued slowdown in China spooked equity and commodity traders. 
 
 The Dow Jones Industrial Average dropped 2.7% or 461 points. The blue-chip index is now down 9.6% from its all-time closing high set in May. 
 
 The S&P 500 was down 2.7%, and the Nasdaq slid 3.1%.The small-cap index Russell 2000 fell 0.9% and officially entered correction territory, dropping more than 10% since its peak on June 23. The Volatility Index, otherwise known as the 'fear index', jumped 31% to 25.16. 
 
 "This volatility is likely to remain with us, at least until the end of the year," said Nigel Green, CEO of deVere Group. "By then we will have a clearer view as to the risk of a China economic 'hard landing', and the degree to which capital markets are prepared to absorb higher U.S. interest rates." 
 
 Must Read: Warren Buffett's Top 10 Dividend Stocks 
 
 "But for most long term investors, fears of a near-term financial apocalypse are overdone," he added. 
 
 High-momentum consumer and tech stocks were hit hard in the broad-based selloff. Netflix (NFLX - Get Report) moved closer to bear market territory on Friday after falling 16% since its August 6 record close of $126.45 a share. The shares will have to have fallen more than 20% from their 52-week high to constitute a bear market. 
 
 Likewise, Apple suffered a massive decline, falling 4.1% on Friday. Shares are now down 19% from its February 23 record close. 
 
 Worries over China continued after manufacturing activity in the country fell to a six-and-a-half-year low. The flash manufacturing PMI fell to 47.1 in August from 47.8 in July. Worries over slowing growth in the world's second-largest economy has triggered selloffs in global markets. China's Shanghai Composite fell 4.3% on Friday and 11% for the week. 
 
 "One of the most asked question about China lately has been how fast the Chinese economy is actually slowing," wrote Wei Yao, economist at SG Global Economics, in a note. "In our view, China's structural growth deceleration is only half-way through and under the weight of debt and excess capacity, weakening investment demand will remain the main culprit." 
 
 A slowdown in China's manufacturing sector pressured crude oil. West Texas Intermediate crude closed down 2.1% to $40.45 a barrel after briefly dropping below $40. Crude was down 4.8% for the week, its eighth weekly loss and its longest losing streak in 29 years. 
 
 The energy sector was the worst performer on markets as crude oil fell. Among the biggest losers, Exxon Mobil (XOM) , Chevron (CVX) , and Schlumberger (SLB) fell more than 1%, while Halliburton (HAL) plummeted 5.2%. The Energy Select Sector SPDR ETF (XLE) fell 2.7%. 
 
 In earnings news, Hewlett-Packard (HPQ - Get Report) added 1% despite reporting its fifteenth straight quarter of declining sales. Net income of 88 cents a share beat estimates by 3 cents, though revenue of $25.35 billion stumbled 8% and missed expectations. The company is set to split into two companies on November 1 with one company focused on its PC and printer business and the other on enterprise servers and software. 
 
 Deere (DE - Get Report) fell 8.4% after reporting third-quarter profit down 40% from a year earlier. The company also cut fourth-quarter guidance, expecting equipment sales down 24% on weak demand in the agricultural sector and a stronger dollar. 
 
 Foot Locker (FL) was down 3.1% despite a better-than-expected second quarter. The athletic retailer earned 84 cents a share, 15 cents above estimates, while revenue of $1.7 billion climbed 3.7% and beat expectations by $40 million. Comparable-store sales increased 9.6% compared to an expected 6% increase. 
 
 Salesforce.com (CRM) climbed 1.7% after reporting a better-than-expected second quarter and issuing solid guidance. The cloud software developer earned 19 cents a share, a penny higher than forecast, and revenue jumped 23.5% to $1.63 billion. ||||| Stocks plummeted on global-growth fears for a second straight day Friday in a plunge that dragged the Dow industrials into correction territory. 
 
 The global market rout pummeled stocks and commodities as fresh evidence emerged that China’s economy is slowing, spooking investors. 
 
 The Dow industrials lost 530.94 points, or 3.1%, to close at 16459.75, putting it in correction territory, as defined by a 10% decline from a recent high. The S&P 500 dropped 64.84 points, or 3.2%, to close at 1970.89. The Nasdaq Composite fell 3.5%, or 171.45 points, to 4706.04. 
 
 The Dow’s more than 1,000-point drop this week was the largest weekly drop since the week ended Oct. 10, 2008. 
 
 Related Video U.S. stocks tumbled on Friday as the Dow industrials plunged 531 points, dragging the index into correction territory. WSJ's Geoff Rogow and Barron's Jack Hough discuss what's spooking investors and the outlook for global markets in the week ahead. Photo: Getty 
 
 U.S. oil prices also briefly dropped below $40 a barrel on Friday, a level not seen since the financial crisis. 
 
 Signs of a sharp slowdown in the world’s second-largest economy have unnerved investors since Beijing surprised markets last week by devaluing its currency. Shares in the U.S., Asia and Europe have tumbled, along with commodity prices as investors fretted about waning Chinese demand just as supplies are surging. 
 
 The market turmoil has some traders exercising caution. 
 
 “You have a situation that’s tough to play,” said Christopher Cady, a New York-based trader. He said he closed out bets toward the end of the week that U.S. stocks would fall. “Nimble…is the new black.” 
 
 The pan-European Stoxx Europe 600 ended the session 3.3% lower, closing out its biggest week of losses since August 2011. The index has now lost nearly 13% since its April peak, entering correction territory. 
 
 Earlier, the Shanghai Composite Index tumbled 4.3%, hitting its lowest level since March, despite Beijing’s efforts to prop up the market in recent weeks. In Japan, the Nikkei fell 3% to a six-week low. 
 
 An early gauge of China’s factory activity fell to a six-and-a-half year low in August, heaping further pressure on stocks and commodities after Thursday’s global selloff. 
 
 “Now we’ve had some harder evidence that China is slowing relatively fast, people have chosen to get out,” said Kiran Ganesh, a multiasset strategist at UBS Wealth Management, which oversees around $2 trillion of assets. 
 
 A surge in investor demand for assets considered safest during times of market stress sent the yield on 10-year U.S. Treasury bonds to 2.042%, its lowest level since April. Yields fall as bond prices rise. 
 
 The dollar fell by around 1% against the euro and Japan’s yen. The euro and yen have recently tended to rise during times of market stress. 
 
 Some investors and analysts say they think the tumult in the markets could complicate the Federal Reserve’s plans to raise interest rates. 
 
 “The Chinese have created an air of fragility around the globe. Markets will now surely have to firm up considerably for the Fed to pull the trigger next month,” said Deutsche Bank analyst Jim Reid. 
 
 Ultralow interest rates have fueled a big rally in stock markets since the financial crisis. On Wednesday, minutes of the Fed’s latest policy meeting showed officials were divided over when to raise rates, with some citing concerns over China’s economy as a reason to hold back. 
 
 But a delay in lifting rates may bring little comfort to investors if slowing global growth is underpinning the Fed’s caution. 
 
 Paul O’Connor, a senior fund manager at Henderson Global Investors, which manages £82 billion ($129 billion) in assets, said he has been selling stocks and buying bonds in recent months, fearing further spillover from the recent Chinese selloff. 
 
 “Is there a buying opportunity in stuff that has got beaten up, or will it start to erode confidence in developed market assets? We’re in the latter camp,” he said. 
 
 Global equities suffered $8.3 billion of outflows in the week ended Thursday, representing the worst week in almost four months, according to data from Bank of America Merrill Lynch published Friday. Losses were particularly heavy in the emerging markets and the U.S. 
 
 The recent rout in commodity markets continued Friday as fears over waning Chinese demand intensified. 
 
 Oil prices extended their recent declines. Brent crude oil, the global benchmark, fell 2.5% to around $45.48 a barrel, its lowest level since January. The U.S. benchmark settled down 2.1% at $40.45 a barrel. 
 
 Industrial metals prices also fell as the Chinese data reignited worries about the future pace of demand from the world’s top consumer. 
 
 “Commodity markets are telling us this is quite serious,” said Neil Dwane, head of European equities at Allianz Global Investors, which oversees EUR412 billion ($463 billion) of assets. 
 
 --Chiara Albanese, Christopher Whittall, Josie Cox and Ese Erheriene contributed to this article. 
 
 Write to Leslie Josephs at leslie.josephs@wsj.com and Tommy Stubbington at tommy.stubbington@wsj.com ||||| L.A. Little, a professional money manager trading his own accounts while managing investment funds for qualified investors, is the author of three books (Trade Like the Little Guy, Trend Qualification and Trading, and Trend Trading Set-Ups) and has written extensively for many popular publications, such as Stocks and Commodities, Active Trader, TheStreet.com, RealMoneyPro.com and Minyanville.com. He writes daily on his website Technical Analysis Today, which offers tools and services that implement the concepts he espouses, and can be reached at tat@tatoday.com . 
 
 It used to be said that if the U.S. markets caught a cold the rest of the world would catch pneumonia. In today's world, the U.S. remains the big dog, but more and more, the world’s effects on our internal economics grows greater and greater. In Wednesday's "Silent Crash" column, the hypothesis was that the U.S. markets were likely to be enveloped in the selling that was already well underway around the world. Last week's "Stock market breakdown” column also outlined the heightened and immediate risks we faced. That was the bad. Thursday was the beginning of the ugly. 
 
 Remember, neoclassical thought says you can't get a correction, let alone a bear market, without a break of multiple swing points across multiple timeframes. It's is a basic tenet of the model, and Thursday we got the first piece of what today is likely to be that scenario. 
 
 The breakdown on the short-term timeframe is now actualized, and if price holds lower than the swing-point lows shown in the following chart, then we finally have multiple breaks of multiple swing-point lows on multiple timeframes. That is the ugly. 
 
 And the ugly is happening across sectors and indexes here — just as it has happened elsewhere already in the world. We are catching the cold from over there now. 
 
 The good is that this simply is the cleansing needed to provide better entry points for longer-term investors. I know that everyone likes to think crash when the proverbial stuff hits the fan, but a cleansing is a good thing — not a bad one. It's just feels bad while being administered. What is being said here is a correction — not a bear market — might just be the outcome when it is all said and done, which was outlined a little over a week ago in "Stock-market technicals suggest a breakdance lower.” 
 
 As for the near-term outlook, assuming these breaks of the swing-point lows on the weekly timeframe remain in place through today's close, that makes for a 90%-plus probability of at least two to three bars sideways to down on the weekly timeframe. The likely scenario in this case, and in neoclassical terms, is for a successful bearish retest-and-regeneration attempt. Essentially it looks something like this: 
 
 A breakdown (happening now) with trend transitions and likely two to three weeks of down 
 
 A bounce that retests into the prior swing-point lows that were broken in No. 1 
 
 A failure of that bounce to get above and stay above the highs of the swing-point-low bars broken in No. 1 
 
 Another drop where stocks break to even lower lows 
 
 If this does unfold, and it is highly likely on bearish breakouts involving multiple swing points, then the ugly will most likely play out. That, however, will eventually set up the better buying opportunity for those who have moved at least some of their holdings to cash over the past week or so when the alarm bells sounded. 
 
 More from MarketWatch
– It was bad this morning, and it got downright ugly this afternoon: The Dow finished the day down 531 points, while the Nasdaq and S&P 500 were similarly hammered, reports the TheStreet. The Dow fell more than 300 points yesterday, making this the biggest two-day drop since the financial crisis. Investors are "spooked" over China's economic troubles, and it's taking a toll on both stocks and commodities, reports the Wall Street Journal. At one point today, oil dipped below $40 a barrel, which it hasn't done since the crisis. The final numbers: The Dow fell 531 (3.12%) to close at 16,460, the Nasdaq fell 171 (3.52%) and the S&P fell 65 (3.18%). One school of thought is that this is a necessary "cleansing," as an analyst puts it at MarketWatch. "I know that everyone likes to think crash when the proverbial stuff hits the fan, but a cleansing is a good thing—not a bad one," writes LA Little. "What is being said here is a correction—not a bear market—might just be the outcome when it is all said and done."