Syria Situation Spooks Market

On Monday, the stock market had been making modest gains until Secretary of State John Kerry spoke out against Syria’s chemical weapons attack on its own citizens, insisting that the regime should be held accountable for the atrocity.

Earlier in the day, stocks had been making modest gains after the dismal report on July Durable Goods Orders from the Commerce Department raised hopes that the Federal Reserve would postpone the “Septaper” of its bond-buying. Although economists had been anticipating a 4 percent decline in durable goods orders during July, the Commerce Department’s Census Bureau reported a 7.3 percent drop.

At 3:10 EDT – after John Kerry’s remarks about Syria – the S&P 500 Index abruptly sank from 1,666 to 1,656.

The Dow Jones Industrial Average (DIA) lost 64 points to finish Monday’s trading session at 14,946 for a 0.43 percent decline. The S&P 500 (SPY) declined 0.40 percent to close at 1,656.

The Nasdaq 100 (QQQ) dipped 0.05 percent to finish at 3,122. The Russell 2000 (IWM crept upward by 0.02 percent to end the day at 1,038.

In other major markets, oil (USO) rose 0.03 percent to close at $37.96.

On London’s ICE Futures Europe Exchange, October futures for Brent crude oil advanced by $0.09 (0.08 percent) to $111.13/bbl. (BNO).

December gold futures advanced by $7.70 (0.55 percent) to $1,403.50 per ounce (GLD).

Transports rolled forward while in neutral during Monday’s session, with the Dow Jones Transportation Average (IYT) advancing 0.02 percent.

In Japan, stocks made a slight retreat as the yen strengthened to 98.52 per dollar before the closing bell in Tokyo on Monday. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average declined 0.18 percent to 13,636 (EWJ).

In China, stocks soared after Deutsche Bank and Credit Suisse raised their forecasts for China’s 2013 GDP growth. Credit Suisse increased its estimate for expansion during 2013 from 7.4 percent to 7.6 percent. Deutsche Bank raised its forecast for China’s second half of 2013 from 7.6 percent expansion to 7.7 percent. The Shanghai Composite Index skyrocketed 1.90 percent to 2,096 (FXI). Hong Kong’s Hang Seng Index climbed 0.65 percent to end the session at 22,005 (EWH).

European stocks got off to a bad start this week as political chaos resumed in Italy (VGK). Silvio Berlusconi’s loyalists have threatened to fracture Enrico Letta’s collation government if “The Thing That Wouldn’t Leave” (Berlusconi) is forced out of the nation’s Senate as a result of his conviction for tax fraud.

While concerns about a spike in Italian sovereign bond yields were discussed by several economists, stock prices sank following declines in the nation’s financial sector (EWI). Italy’s second-largest bank, Intesa Sanpaolo saw its share price fall 3.3 percent, while shares for UniCredit – Italy’s largest bank – sank 3.5 percent. Berlusconi’s broadcasting company, Mediaset, took a 6.3 percent nosedive.

The Euro STOXX 50 Index finished Monday’s session with a 0.16 percent decline to 2,821 – remaining above its 50-day moving average of 2,718. Its Relative Strength Index is 57.52 (FEZ).

Technical indicators revealed that the S&P 500 closed above its 50-day moving average of 1,660 after finishing Monday’s session with a 0.40 percent decline to 1,656. At this point, bears are watching the formation of a head-and-shoulders pattern on the S&P chart, from the period beginning in early May. (There already is a pinhead-and-shoulders pattern running from the period beginning on July 10 through August 16.) Its Relative Strength Index dropped from 46.72 to 43.94. The MACD is below the zero line as well as the signal line, suggesting a continued decline.

For Monday, most sectors were in negative territory except for the healthcare sector, which advanced by 0.14 percent and the materials sector, which remained unchanged. The consumer staples sector took the hardest hit, with a loss of 1.17 percent.

Consumer Discretionary (XLY): -0.21%

Technology: (XLK): -0.47%

Industrials (XLI): -0.22%

Materials: (XLB): unchanged

Energy (XLE): -0.17%

Financials: (XLF): -0.62%

Utilities (XLU): -0.74%

Health Care: (XLV): +0.14%

Consumer Staples (XLP): -1.17%

Bottom line: After stocks modestly advanced following a dismal report on July Durable Goods Orders, which raised investors’ hopes that the “Septaper” would be postponed, Secretary of State Kerry explained that Syria’s government should be held accountable for its chemical weapons attack on a rebel stronghold, sending stock prices into the red.

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