Those investors who made money in August should be pleased since the month turned in the worst performance since May 2010. And the results would have been much worse for the Dow industrials had the index not had a 7.4% rally with the Dow advancing in seven of the last eight sessions of the month.

But despite the late-month rally, longer-term studies like the monthly chart of the S&P 500 with a 17-month moving average show that a sell signal was still issued at month end. On Aug. 18, the Daily Market Outlook warned of tough times ahead saying, “The long-term trends have been broken. Markets do change, and perhaps the fall will bring a new beginning, but currently the trend is bearish and stockholders should not grab for straws that they hope will bail them out of a bear market.” 

Normally a monthly chart with a moving average is issued at the end of the month, but I wanted to forewarn our readers of the serious nature of the recent declines. Note that even the strong end-of-the-month rally was not able to overcome the bear-market signal issued earlier.

And so the bulls have their work cut out for them. They are confronted with a massive band of potential selling that extends from the breakdown at 1,250 – 1,260 to the May to June highs at around 1,350. Penetrating the 20-day moving average at 1,250 on positive breadth is just the start of a long struggle ahead. Absent from the late-month rally are sharp spikes in volume. Instead each rally has been supported by volume that on some days was less than one-third of the volume on down days.  

The August breakdown inflicted serious technical damage that will take time to repair. What is needed are committed buyers, and currently they appear absent from the daily results. 

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

• See Serge Berger’s Daily Market Outlook: Why Traders May Want to Take an Early Vacation
• See Sam Collins’ Trade of the Day: RIMM’s Rally is Just About Finished