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It seems strange to worry about the stock market on a day when the Dow finally reached the 22,000 mark.

Even the fact that the move was largely on the shoulders of Apple’s jump higher after it released great earnings news shouldn’t make much of a difference. The trend is the trend, and it is still to the upside.

The real problem is that a few of the positive developments I’ve presented here in recent weeks have started to peel away. That does not mean this bull market is over, but it does put us on notice for the sometimes critical month of August.

Why is August critical? Not for the fireworks of, say, October. It is often a slower month in terms of turnover as summer vacations take hold. And as we approach Labor Day, volume can get quite low, creating a market where even the slightest change in mood can move the price needle quite a bit. Heavy volume provides buffers. Lower volume allows one side—either bull or bear—to dominate.

For example, the so-called flash crash of 2015, when the Dow Jones Industrial Average dropped roughly 1,100 points in the first five minutes of trading, and exchange-traded funds nearly collapsed due to panic selling. That happened on Aug. 24.

Of course, that’s an oversimplification, and there were many other reasons why prices moved so much. I contend that if the markets had been their usual robust selves, the whole incident would have been more modest.

That sets up this month for a surprise, although I cannot say definitively it will be a negative one. Yet given the recent negative action in some of the sectors and indexes whose technical breakouts I cheered on, it does seem that more caution is warranted.

Monday, I wrote here that the Dow Jones Transportation Average fell off a small cliff. The short-term condition still looked vulnerable, but the long-term trendline from the start of this leg of the rally remained intact.

I warned that the trucking subsector was already sitting on its own trendline, and in Tuesday’s session it fell below it.

It’s not the death knell for the broader market, just something to keep in mind. But now, the small-cap Russell 2000 index has fallen back into its prior trading range, and that is yet more evidence for the bears (see Chart).


When the Dow transports and the Russell separately broke out from their trading ranges, I saw the rally broadening out—a bullish signal. The failure of the transports’ breakout removes part of that argument. Now I’m watching the short-term support in the Russell within the major trading range in the 1400 area. (The Russell traded near 1413 Wednesday afternoon.)

Should the index drop below that short-term support, I would have to concede that the important upside breakout failed—and down goes another bullish argument.

Finally, recent weakness in big technology stocks has also scared the bulls. On July 27, many of the big names scored bearish reversal patterns by jumping higher early in the day and closing with significant losses.’s (ticker: AMZN) earnings miss played a large role, but the Dow industrials still managed to close at a fresh record high. New highs are not bearish.

Even Amazon is not truly bearish, as it remains above the major trendline drawn from the start of this rally leg in February 2016. Further, the NYSE advance-decline line, which measures full market breadth on the New York Stock Exchange, reached another all-time high of its own on Tuesday.

Because market breadth remains strong, even as a few sector indexes weaken, it is very hard to think the market is about to break. Three of my four key sectors—financials, home building, and tech—remain very close to multiyear highs. Only retail is floundering.

The caveat is that as August activity starts to thin, even small bits of bad news can cause a stampede to the exit doors. Of course, a little more good news could cause a stampede to higher prices, so the conclusion is to hold a bullish point of view but not mortgage the house to do it.
Michael Kahn, a longtime columnist for, comments on technical analysis at A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.