The Self-Fulfilling Stock Slide: Dow Watch

Blue-chip stocks were holding steady Wednesday, although it's still difficult to wipe away the memory of Tuesday's tumble.
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At 11:52 a.m. EDT

)

NEW YORK (

TheStreet

) -- Blue-chip stocks were holding steady Wednesday, although it's still difficult to wipe away the memory of Tuesday's tumble.

A quick survey of other financial news media sources will give you a handful of reasons for why the

Dow Jones Industrial Average

dropped 2% yesterday, as though a giant dartboard exists and is used for when no clear explanation is available.

An article posted late Tuesday on another Web site suggested traders were "rethinking" the 50% increase in the U.S. averages since the March lows. That excuse was particularly confusing to me, as I don't recall seeing a fundamental change over the previous two sessions that should have made anyone reconsider the entire six-month rally.

Another personal favorite was one that cited "increasing worries" of more bank failures. Really? We've had 84 bank failures in 2009 and

now

investors are really concerned? I don't buy it.

Why is it, then? Sellers took hold of and drove the market down? Why did the Dow fall dramatically despite good economic news? Robert Pavlik, chief market strategist with Banyan Partners, has an interesting take on Tuesday's slide, arguing that it had less to do with economic news and more about a self-fulfilling prophecy.

"Investors sold stocks yesterday for no other reason than people were worried that a pullback in September would materialize," he wrote in an email. "That concern led to some profit-taking that developed into a more extended selloff. Now we have a nervous market with folks worried that additional selloffs are likely and that will likely keep investors on the sidelines."

As I pointed out yesterday

, declining volume has picked up over the last few sessions. It was only a matter of time before a decline like Tuesday's came.

We can see now that the recent slide doesn't appear to mark the end of the world. The Dow's loss Tuesday was the biggest point and percentage drop since Aug. 17, when the Dow was hovering between 9100 and 9300. In other words, we're now back to the upper end of that range. This is certainly nothing to panic about.

Tuesday also marked the Dow's third straight day of declines, bringing the total to 270 points, the biggest three-day drop since July 7. On that day, the Dow closed at 8163; We're nearly 1,150 points higher than that position right now. To put it another way, a string of big declines doesn't necessarily mean the end for bulls.

Wednesday's action is anything but inspiring, although bulls should be happy the three-day slide hasn't continued, at least not yet. It's also a positive sign the Dow is hanging in there despite a mixed bag on data and headlines this morning.

The

ADP employment report

was weaker than most economists expected, and July factory orders rose only 1.3% when Wall Street's consensus stood at an increase of 2.2%. On the other hand, second-quarter productivity rose to 6.6% from the preliminary read of 6.4%, better than economists had predicted.

Looking at the Dow's components,

Coca-Cola

(KO) - Get Report

,

3M

(MMM) - Get Report

and

Cisco Systems

(CSCO) - Get Report

were all higher by 1% or more.

American Express

(AXP) - Get Report

and

Hewlett-Packard

(HPQ) - Get Report

were also higher, rising 0.9% each.

On the downside,

Merck

(MRK) - Get Report

,

Disney

(DIS) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

and

Home Depot

(HD) - Get Report

were all lower by 1% or more.