Tuesday, August 27, 2013

What is that odd reddish color on my screen?

It's been nearly 2 months since we've had a meaningful decline in the markets and today was unique in that there was never any attempt to buy the dip.

The general consensus seems to be uncertainty surrounding the path the US will take toward Syria shook the markets.  First, let's talk about Syria.

1) We have taken the line that there is "no doubt" that President Assad used these chemical weapons against his people as gospel.  Well, actually Sec Kerry and Spokesman Carney sort of dance around the issue of blaming Assad and say there was little doubt these weapons were used but we don't actually place the blame with Assad.  The major question I have is -- Why in the world would he have done this now?

Syria had fallen off the front page of the global news and been replaced by the complete disaster in Egypt. Was it a coup, wasn't it, etc, was all we could talk about.  Assad was quietly working to put down the rebels in his country without drawing any international headlines.  Then out of the blue he (a UK educated, doctor btw) decides he wants to be the new face of evil in the world by launching chemical weapons?  Odd to say the least.  For some reason the image appears at the bottom of the post, but look at this google trend chart for Syria and Egypt and tell me why Syria would have wanted to jump back in the global spotlight.

2) Russia, China and Iran are not on board with this effort.  The Saudis and Russians appear to have had a falling out over Syria and it feels like we're being drawn in to settle their squabble.

3) Global oil prices went up about 3% to $109/barrel for West Texas crude because Syria supplies 0.48% of the world's crude??  No oil prices went up because there is a fear that one of the "other players" Russia or Saudi Arabia (who account for 25% of the world's crude) may be drawn into any conflict.

So, do I think stocks reacted to the Syrian news?  Maybe a little but there are bigger stories going on globally.  Here are the primary drivers I see for today's decline:

1) Goldman was hinting that they believe the Fed taper (end of QE) will begin in September.  If you believe that most of the run-up in stocks over the past 3 years has been due to Fed easing, do you want to own stocks as the Fed starts to reduce their purchases?

2) India - The currency of the third largest economy in Asia and home to 1.2 billion people remains in free fall.  The currency is down 20% in 3 months and down close to 50% in the last 2 years.

3) Finally, good old fashioned technical indicators. I've been telling you for years that I don't buy the value proposition for chart reading, but the reality is that many use it to guide their trading.  We've broken a number of key support levels and many more are hanging by a thread.  If we continue to see declines we could retest the May/June lows.   If we somehow manage to get below those levels there is no technical support for another 200 points or so for the S&P 500.

On the plus side the weather is expected to be glorious in the northeast for the next few days.  Get out there and enjoy the weather!!


1 comment:

Elizabeth J. Neal said...

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