Dow Heads To The Downside: It's Not Syria

The last several days have been full of the news of general stock market price woes and tensions with Syria seem to be high on the headline blame list. On Monday the Dow 30 Industrial Composite Index dropped about 150 points the last hour of trading. Tuesday we saw the Dow shed another 170 points. We find headlines like "Syria concerns weigh on markets" and "Asia joins global equity rout on Syria fears; Nikkei leads losses" leading the financial news. However, the premise that Syrian tensions may be the primary cause of the Dow's woes and the sell -off early this week may be seriously misplaced. Investors and traders may want to look a little deeper before trading on such a premise.

Many analysts have been calling for the possibility of a general stock market correction to start this month. I'm one of them. Last month's earnings announcements were on balance not particularly strong, neither were many forward outlooks. Unemployment in the U.S. also remains a chronic and unresolved problem throughout the economy. In early August Fed tapering concerns mounted again. In response, bonds resumed a trek towards yet another poor monthly performance, their fourth such month in a row, and this time stocks followed. The short-lived aftermath on Thursday and Friday last week following Wednesday's Fed Minutes Release simply paused the Dow's downward trajectory for a couple of days, which isn't an unusual occurrence. Historical seasonal volatility associated within September in the stock market looms right around the corner. Technicals are also breaking down.

In light of these fundamentals, a reference to Syrian tensions is unneeded to account for the market's present weakness and current trading price levels. In fact, it's my observation that the market is performing in a manner and toward price levels consistent with my forecast at the beginning of this month. This week's prices are running right along key quarterly echovector slopes established at key time-points during last week's important Fed Minutes week. This can be seen in the following chart of the DIA ETF, which I will use as a proxy for the large cap stock market composites in my analysis.

(Right click on image of chart to open image in new tab. Left click on the image opened in the new tab to further zoom EchoVector Analysis chart image illustrations and highlights.)

DIA ETF 4-MONTH DAILY OHLC QUARTERLY ECHOVECTOR PERSPECTIVE

(Click to enlarge)

The chart above highlights key quarterly echovectors at key time-points during last week's important Fed Minutes week. We can see the coordination of last Monday's weekly beginning (as the market set up in anticipation for last Wednesday's Fed Minutes Release) with its echo-back-date Monday one quarter ago. This echovector is highlighted in solid white.

We can also see last Wednesday's extended hour's price low that followed the Fed Minutes Release and its coordination with the extended hours price low with the corresponding Wednesday one quarter ago. This echovector is highlighted in solid grey. Its slope is key here and this echovector was established last week before all the Syrian tension concern hit. Note that the quarterly echovector pivoted downwards also last week (from the white quarterly echovector's slope at the beginning of the week to the grey quarterly echovector's slope on Wednesday after regular hours close).

Looking at the grey-spaced quarterly coordinate forecast echovector that runs from the weekly low of the week that followed the Fed Minutes Release week last quarter, we can now also see that the DIA simply closed right on that coordinate forecast echovector Tuesday this week. This indicates that, at most, Syrian tensions may have just gotten us to the coordinate forecast echovector's price level just a few days earlier than in the corresponding week last quarter.

And when you factor in last quarter's further lows as prices moved into June's primary options expiration day (vertical red-spaced line at 6/21) following the Fed Minutes Release in May, and slope momentums to last week's Fed Minutes Release, and include the weight of similar subsequent quarterly echovector momentum at work forward into the beginning of next month, and also add the effect of potentially coming historical seasonal weakness -- on an annual basis -- for September, then the relative weight of Syrian Tensions and its actual effect on the Dow's current price level becomes spurious. The coordinate blue purple price extension vectors also highlight this as well.

Actual economic fundamentals, and the above technical factors and coordinate echovector flows, and their coordinate forecast echovectors and corresponding pivot point projection levels, and perhaps the long Labor Day Weekend coming up, may account more for current price levels than international headlines may misleadingly indicate.

And on August 7TH I put out an alert in an article titled "Could This Be A Correction That's Coming? An EchoVector Pivot Point Perspective" regarding coming weakness in the stock market. Since then the Dow is down about 700 points or almost 5% -- and the correction may not be over yet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Comments

[billcharlesdixon]

You are waiting for a correction which may very well have occurred.

[Tony Roylance]

I like the way you think Abegaz, I think you're on to something.

[Abegaz]

Thank you very much, Tony. We might just be ahead of the pack with this logic. By the way there is a silver lining in this for the Treasury because I think a simultaneous flight to security will take the wind out of the recent rate rises. So bonds will rally and so willl the dollar. Gold should slide with a falling Euro. That's the setup I see. Now lets keep it a secret.

[Abegaz]

Update: Obama to seek Congressional approval for an (authorized) attack on Syria when the sitting commences September 9. This should be a short quick confirmation meaning that following a vote the attack would commence within two days (and with no irony at all) on the 11th of September 2013. Payback time. Beware 9/11 as a major corrective date in equties.

[Abegaz]

Update #2. Congress expected to vote on the Syria issue on Tuesday the 10th of September. The mission is being expanded to 3 days of bombings and it is not unreasonable to expect missiles to fly on the symbolic date of 9/11. I don't think it is the attack that will rattle markets though. It is going to be the response that everyone will be watching. Markets are not much bothered by war itself but they are always impacted by instability and unpredictability. Someone will do something stupid. That will send stocks down for the short term but I believe they will bounce right back later.

[Kevin Wilbur]

Thank you for your comment, JMstocks75. Very insightful. I've been writing for years about this price phenomena that you have mentioned here. See a recent article of mine mentioning it yet again titled "Could This Be A Correction That's Coming? An EchoVector Pivot Point Perspective" at http://bit.ly/17jMnzv published August 7TH, referencing the phenomena's possible occurrence again this year.

And for an update on today's, Wednesday's, specific day-trading and swing-trading market action within this general echovector analysis and perspective, see yesterday's post (and its reiteration today) titled "Today's Tomorrow Quarterly EchoVector Chart Perspective: Update and Analysis" at direct link http://bit.ly/1dmW9Fr by "The EchoVector Market Price Pivots Forecaster Newsletter". The Newsletter is free online.

Again, thanks for your comment, and its possible relevance and trading implications going forward into the next several months.

[Abegaz]

While I agree Kevin I think you might not be appreciating one aspect of the upcoming (inevitable) Syrian conflict. First, it looks like the trouble will be timed roughly coincident (yet prior too) any Fed move to begin withdrawing stimulants. Any serious market correction therefore that materializes this month will forever be blamed on Syrian gas attacks and not on the Federal Reserve. I posit that as missiles begin flying that stock markets will suffer their most serious selloff thus giving cover to the Fed to play its hand and carry through on the agenda of tapering without suffering blame. From that perspective we should be expecting an attack to commence quickly during August, likely as early as this Saturday night and continuing without letup until markets have fallen far enough that even a mid-September tapering announcement will not have any further material impact on equities. Ironically enough, markets may actually be ready to rally again by September 17th which will frustrate everyone who might be betting on a big Fed fail this fall. My bet therefore is to go short the S&P only up until we hear a Fed announcement and long after that.

[Abegaz]

Putting this another way, Kevin, the Dow MUST fall before tapering is announced. I hope you can appreciate why it must be that way and understand the optics of the situation. Markets CANNOT fail because of Ben Bernanke or the presidents of the Fed. It will not happen that way. The impression that must be instilled is that tapering is the correct course of action and that it is being done because a recovery is underway. Any August/September market failure must therefore rest on the shoulders of influences outside the country that cannot be controlled by those with influence on the policy levers back home.

And just an added comment.....watch your trades near 9/11 for a sharp drop keeping in mind a September 17th tapering announcement might actually result in markets rising to everyones great surprise.

[mobyss]

Right. Imagine a 10% or so drop over the next few weeks, culminating in a big ugly -2% day, maybe Friday the 13th. Then, taper is announced, but ONLY $10 off the Treasury purchases (MBS stays the same), with guidance of "We'll wait and see going forward".

The market probably would react positively to this - perhaps beginning the X-mas rally that happens almost every year.

[JMstocks75]

there is a correction every year in sept, bigs move money, it lowwers the market then they re-enter in late oct, and market pumps up, do you deny this?

[mobyss]

In order to have a "Santa Claus Rally" the markets need to start from a lower point. A brief dip to 1450-1500 (-8% to 12%) shakes out a few nervous longs and lets the big money back in cheap(er). Then a smooth 10 to 15% rally back to 1650 or so (as QE taper is slower than expected) to convince main street that everything is okey-dokey and they need to spend freely on Christmas presents.

This would seem to "fit" just right in 2013 but we'll see.