Risk Aversion Sends Stocks Lower

Stocks sank on Tuesday, as risk aversion left an air pocket beneath stock prices when investors fled to the sidelines in anticipation of the strike on Syria. The major stock indices fell more than one percent, while Treasury bonds rallied, sending yields lower. The ten-year Treasury yield sank to 2.71 percent from Monday’s 2.81 percent.

Oil and gold had a huge day on Tuesday, although stock prices for gold mining companies fell. The Market Vectors Gold Miners ETF (GDX) took a 4.31 percent nosedive, despite the fact that the spot price of gold jumped 1.10 percent to $1,420.20 per ounce on the Chicago Mercantile Exchange.

The Dow Jones Industrial Average (DIA) lost 170 points to finish Tuesday’s trading session at 14,776 for a 1.14 percent decline. The S&P 500 (SPY) fell 1.59 percent to close at 1,630.

The Nasdaq 100 (QQQ) sank 2.02 percent to finish at 3,059. The Russell 2000 (IWM took a 2.37 percent drop to end the day at 1,013.

In other major markets, oil (USO) skyrocketed 2.40 percent to close at $38.87.

On London’s ICE Futures Europe Exchange, October futures for Brent crude oil surged by $3.49 (3.15 percent) to $114.22/bbl. (BNO).

December gold futures jumped $22.80 (1.64 percent) to $1,415.90 per ounce (GLD).

Transports reenacted the Titanic’s undersea adventure during Tuesday’s session, with the Dow Jones Transportation Average (IYT) sinking 2.74 percent.

In Japan, stocks fell as the yen strengthened to 98.09 per dollar before the closing bell in Tokyo on Tuesday. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). Anxiety over the situation in Syria helped intensify the decline. The Nikkei 225 Stock Average dropped 0.69 percent to 13,542 (EWJ).

In China, stocks advanced after the National Bureau of Statistics reported that profit for industrial companies jumped to 11.6 percent on a year-over-year basis in July compared with 6.3 percent in June. The Shanghai Composite Index rose 0.34 percent to 2,103 (FXI). Nevertheless, Hong Kong’s Hang Seng Index declined 0.59 percent to end the session at 21,874 (EWH).

European stocks got clobbered as investors became extremely risk-averse in the wake of John Kerry’s statement on Monday, condemning Syria’s chemical weapons attack on its own citizens, insisting that the regime should be held accountable for the atrocity (VGK). Automobile manufacturers had a particularly bad day. Daimler AG saw its share price sink 4.8 percent. Renault’s shares dropped 4.7 percent. Porsche fell 4.1 percent. Both BMW and Volkswagen experienced 3.2 percent declines.

The Euro STOXX 50 Index finished Tuesday’s session with a 2.56 percent drop to 2,749 – remarkably remaining above its 50-day moving average of 2,719. Its Relative Strength Index is 43.66 (FEZ).

Technical indicators revealed that the S&P 500 closed below its 50-day moving average of 1,659 after finishing Tuesday’s session with a 1.59 percent decline to 1,630. At this point, a head-and-shoulders pattern has now formed on the S&P chart, from the period beginning in early May through the present. (There already had been a pinhead-and-shoulders pattern running from the period beginning on July 10 through August 16.) Its Relative Strength Index dropped from 43.94 to 35.14. The MACD is below the zero line as well as the signal line, suggesting a continued decline.

For Tuesday, all sectors were in negative territory. The financial sector took the hardest hit, with a loss of 2.43 percent.

Consumer Discretionary (XLY): -1.63%

Technology: (XLK): -1.75%

Industrials (XLI): -2.02%

Materials: (XLB): -1.76%

Energy (XLE): -0.62%

Financials: (XLF): -2.43%

Utilities (XLU): -0.05%

Health Care: (XLV): -1.62%

Consumer Staples (XLP): -0.53%

Bottom line: Risk aversion was the order of the day on Tuesday, as tension escalated in anticipation of the military strike on Syria. As a result, the major American stock indices experienced declines in excess of one percent.

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