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August Closes a Volitile Month with a Fizzle

Looking back at the month we were witnessed to a wild and crazy trading. The S&P 500 was down more than 5% for the month while the Russell 2000 index was down more than 8%. All the while S&P downgraded the United States Issuer rating from AAA to AA+. Today’s action could be very well the high point for the rally off the August lows. For the second straight day the NASDAQ was unable to close above the March and June lows. This area did act as support, but now we are seeing the area provide resistance for the market. Overall, today we witnessed a big stall day and the market banging up against heavy resistance.

The big volume today shows institutions were involved with the market in a big way. Volume was above average today, but with the market finishing well off the highs and under the mid-point we have to call into question this rally. Last week we saw the S&P 500 flash a day of distribution after the initial follow-through day. History shows a distribution day occurring a day or two after a follow-through day the rally will fail 95% of the time. We have since moved higher, but given the action today and some action amongst the market leaders it appears the market uptrend is under pressure.

Market leaders are very important and today we saw a few key reversals and a few with nasty price action. Two important leaders sported HUGE volume reversals today without any intra-day support. They could recover here or they could down right fail. At this very moment, their action is quite troubling and very telling of what kind of market we are in.

Tread carefully.