August was a soft month for stocks across the board. The Dow Jones Industrial Average (see chart here) closed the month of August down 2.4%, the S&P 500 (see chart here) fell a modest 1.8%, the Nasdaq Composite (see chart here) gave up 2.2% and the small-cap Russell 2000 (see chart here) fell by over 5%. All things considered, not too shabby considering August historically is one of the weakest months of the year for stocks.

The market performance in August did snap a 5-month winning streak for the S&P 500 and the overall volatility in the stocks also picked up some steam. However, I do think the bulls will take such a modest pullback considering how strong the markets had been since early June. It appears some profit taking occurred in August while overall trading volumes were relatively lower. Now that summer is almost behind us, I expect trading volumes to increase along with the possibility of bigger market swings as we head into fall.

Now that we are in September the question becomes can the market weakness in August turn around in September? I typically look for catalysts to see if market direction will turn and as we head into September overall bullish sentiment has decreased. As contrary as this may sound, bullish sentiment decreasing is usually a bullish sign for the markets. I don’t like participating in markets where the sentiment is overly bullish and this has been the case all summer long, especially with how AI stocks went on a tear over the summer. The Artificial Intelligence sector lifted most indexes and if it wasn’t for the AI craze we have witnessed, I am not so sure if the markets would have enjoyed a multi-month bull run.

I always like to look at the technical shape of the markets as another potential catalyst for market moves. There is nothing really standing out either bullish or bearish. From the relative strength index aka the RSI, to where the moving averages are currently positioned, there is nothing too glaring one way or the other. Not a surprise considering how low the trading volumes were in August and the modest pullback that did occur.

Good luck to all 🙂

~George