3 Red Flags I’m Watching Right Now

by Roger Scott | Aug 18, 2026

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Context is everything in trading. Without it, you’re flying blind, and that’s one of the biggest reasons traders lose money. The other is expectations that don’t match reality.

Monday morning, I spotted three warning signs flashing simultaneously. When these signals line up, it’s time to pump the brakes and reassess.

Momentum Is Reaching Dangerous Territory

First, momentum levels were entering overbought territory — too many buyers. We were already elevated, and I believe we’re going to start moving into seller land soon.

That’s a signal the market may be positioning for a pullback.

Second, the Magnificent Seven entered a critical liquidity pocket and started breaking down exactly as I predicted last week. This isn’t some minor group — it represents a massive share of the market. Don’t be foolish thinking this won’t affect tech broadly.

When the Magnificent Seven move, tech moves with them.

Third, the number of stocks making new breakouts dropped from more than 400 on Friday to the 254-258 range, heading toward the 100s. We’ve barely seen any downside momentum yet. We’re losing momentum to the upside while gaining some to the downside, but the bearish reading is still below 100.

And don’t overlook volume. August often brings lighter participation, which can make a market move look stronger or healthier than it really is. Low-volume rallies can be deceptive because fewer buyers are needed to push prices higher. That makes confirmation essential before chasing a breakout or assuming the trend is secure.

Market Internals Are Confirming the Weakness

The internal picture wasn’t pretty either…

The market advance-decline difference hit negative 1,000 Monday morning. It improved to around -800, but it’s still favoring the bears. Meanwhile, the bond market was making new lows on the day.

I’d say it’s a pretty big coincidence that bonds are at a 24-year low while the stock market is at an all-time high — and we’re in the middle of August. Things just aren’t lining up.

The VanEck Semiconductor ETF (SMH) was right on its 50-day moving average this morning. SMH is now above it and holding fairly well, but it has started losing relative strength. The major question is whether it closes below that level.

Upcoming retail earnings could also become an important catalyst. Home Depot (HD), for example, can offer valuable clues about consumer demand, housing activity and the broader retail environment.

Rather than guessing ahead of the report, I’ll watch the reaction for confirmation and look for strategic opportunities once the market reveals its hand.

The market is a living, breathing thing — like a movie unfolding over time. Right now, the script is telling me to be extremely careful. These red flags don’t guarantee a collapse, but they do tell me the risk-reward isn’t favorable for aggressive positioning. When the signals line up like this, I listen.

I hope that helps!

Roger Scott
Roger Scott Trading

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