Whenever markets drop handily and out of the blue, there can be a fight that erupts over the real reason behind the drop. Some traders are using technical level breaches as the reason behind Tuesday’s sudden drop. Other may try to use macroeconomic news as the reason they want to see for the drop. Likely, it was really both.

First up is technical levels.

When it comes to technicals, selling programs may have kicked in after the news headlines may have spooked traders and investors. Bond yields have come down, but not exactly in a manner of panic. Still, we would note the following levels:

• The DJIA was down 180 points at 16,389 – the lowest level since the selling commenced more than a week ago. We would point out that the DJIA’s 200-day moving average is currently down at 16,333.
• The S&P 500 Index was down over 22 points at 1916.90. While this is also the lowest level of the S&P since selling commenced in recent days, the S&P 500’s 200-day moving average is much farther down than the DJIA’s 200-day moving average. That is down at 1860.15 – and the S&P is much better of a real market yardstick.
• The 10-year Treasury note is yielding 2.48% and the 30-year Treasury note is yielding 3.28%.
• One last reminder – August is the worst month for stocks now!

On an economic front…

The ISM Non-Manufacturing index was not showing price pressure but it did signal strength enough at multi-year highs that some might be leaning back towards a “Fed rate hiking process sooner than expected.” That should say “again” because we have heard this logic of faster rate hikes based upon stronger data for longer than one can easily remember. Still, that strength was after a much hotter than expected GDP report last week.

On the geopolitical front, several issues coincided – five to be exact.

Word has come out of Poland from its foreign minister that Russia was potentially ready to escalate its pressure on Ukraine. That could be “into” Ukraine, or it could simply mean that there is an increased pressure. The words used by CNBC on the matter: “poised to pressure or invade Ukraine.”

Another issue is that Russia, in an effort to retaliate against the West would be to force European airlines to not use its airspace in flying around the world.

Another issue is out of Afghanistan, where Tuesday brought news that someone wearing an Afghan uniform opened fire inside a base in Kabul, Afghanistan and killed a U.S. major general. This was listed as the highest ranking officer to be killed in action since the Vietnam War. This is significant because this could escalate fighting in retaliation (or defense) on behalf of the Americans and allies.

One last issue was one which is probably a fear of yesteryear, but a military jet earlier in the day had escorted a commercial jetliner of Qatar Airways back to Manchester Airport over a security incident.

The last issue we can bring up is the continual media talk about two ebola patients returning to the U.S. and a third potential case being investigated. Again, this is the last of the reasons – and the least likely to be systemically important to the markets. And the supposed third case has reportedly been deemed a negative test, so not a third case.

ALSO READ: How to Avoid an August Stock Market Crash, While Staying in the Stock Market

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Our Take – This is a frothy stock market that simply needs a long overdue market correction that can rebalance the bias.

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