The markets moves so slow last week it was like watching grass grow.

The volume was very light averaging 5.2 billion shares with 4.8 billion on Friday. There was no conviction in either direction. All the market's gains for the week came on the Tuesday short squeeze. The S&P gained 24 points on Tuesday but ended the week with a total gain of 17 points.

I have written several times about the expected low volume the last two weeks of August and last week was a textbook example. Nobody was trading and everyone was just hoping to get out of August without any major losses.

Unfortunately, September is typically worse than August. Volume next week is going to be even lower and there are some growing problems that could change market sentiment to bearish. I wrote about the large cap tech stock breakdown in the market commentary and that is a dangerous possibility. If those support levels break we could see a strong hit to market sentiment.

However, the majority of tech stocks were actually positive for the week. The A/D line for the Nasdaq closed at a two week high. It is just the big cap techs that are weakening. We would rather have the troops advancing than only the 15 generals but the generals are the stocks that determine sentiment.

The A/D line on the S&P also improved bit not as much as the Nasdaq. However, it did not decline as much as the Nasdaq either. The S&P A/D is actually neutral for the week because it closed right in the middle of the three-week range.

The bullish percent index on the S&P declined to 64% and a nine-month low. That is the percentage of S&P stocks that have a buy signal on a point and figure chart. It is widely seen as a strength indicator for the market.

The percentage of S&P stocks over their 50-day average declined to 41.6% on Monday and a ten-month low. This is another breadth indicator for the market. The percentage over their 200-day average also fell to a ten-month low at 63%.

Another breadth indicator is the McClellan Summation Index on the NYSE. This is calculated on the net advancing issues (advances - declines) on the 2,400 stock NYSE. The NYSI is also at a ten-month low.

If you look at all the market breadth indicators above they are telling us that the market is weakening. However, if you look at the charts of the actual indexes the declines are minimal. All the major indexes are only about 2% below their recent highs. Appearances can be deceiving. This is the case of a few stocks holding up the market while the support base is eroding around the edges.

We have all seen the videos of a house on a cliff over a riverbank. From the front of the house everything seems ok but the flood stage river is slowly eating away at the cliff behind the house. Everything is ok until suddenly it is not and the house crashes over the cliff and into the river never to be seen again.

That is the way I feel about the market this week. The indexes are somewhat weak but not dangerously so. The breadth indicators are all eating away at the foundations and eventually there will be a market collapse. I hope I am wrong but that is the picture in the charts.

The S&P is fighting resistance at 2,450 and a support test at 2,420 could appear in the coming weeks.

The Dow has a similar pattern with resistance at 21,900 and again at 22,000. The Dow was the strongest big cap index last week but it is not immune to the underlying weakness. A retest of 21,600 or 21,500 could be the next move.

The Nasdaq is the index most in danger because of the fade in the big cap tech stocks. If they break support, the Nasdaq could easily retest 6,100, which would be my target for dip buyers to appear.

Note that Facebook is the best performing of the FANG stocks but it is still in decline. It is amazing the Nasdaq has held up as well as it has with all of these stocks in decline.

We are rapidly moving towards the FOMC meeting on Sept 20th when the Fed is expected to announce their plan to taper QE purchases. For the last two years, the Fed has been reinvesting the proceeds from matured securities into new securities in order to maintain their balance sheet at $4.5 trillion and interest rates at very low levels. Even though everyone expects the taper announcement that does not mean the market is going to react well.

This week is month end and there is typically some buying but for August, it is normally minimal. The key for this week is the expected low volume and the continued weakness in the big cap tech stocks. If they break support, the market is likely to decline sharply. If they can hang on to current support levels, we could see another week like last week where the market goes nowhere. With September expected to see significant volatility around the debt ceiling and budget battles, I would not be surprised to see investors moving to the sidelines ahead of the events.

The market lows for the second half are typically set in late September and early October. That is a long way off with a lot of minefields in our path.

Unless you are a short-term trader, the risks of holding long-term positions over the next 8 weeks are very high. If you have them, hold them but I would not add any new ones until we see a buying opportunity.

There is always another day to trade if you have money in your account.

Enter passively and exit aggressively!

Jim Brown

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