The mid-July, post Brexit run-up has given way to a mild pullback and... wait for it... another sideways box.
For more than two weeks, the S&P 500 has been virtually stuck in an amazing, maddening range of less than 1%.
This is an almost unheard-of level of inaction.
In fact, I went back through 10 years of data and could not find any other occurrences of a two-week range that was this tight.
This is really strange. But the good news is, it can't last.
Here's what I think will happen...
To see how unusual this is, all we have to do is look at the data on this chart I drew at the end of last week to see how exceptionally quiet this market action has been. Check out the Bollinger bands, in particular, the dotted line sandwiched between two solids. They're moving closer to the dotted average, which denotes very low volatility, in this case barely 4.5% over the past three weeks:
The laws of probability say that we can't keep this tight, "nowhere" market for much longer.
I'd be very surprised if we were through with the general upward thrust of the past few weeks.
As I said last week - market strength usually leads to more market strength, and this pattern is setting up like a classic "Edwards and Magee" continuation flag.
Robert Edwards and John Magee wrote one of the classic books on technical analysis called "Technical Analysis of Stock Trends" - 624 pages of stock pattern recognition goodness.
If you haven't had the chance to pick this classic up, I highly recommend that you do.
Of the many patterns they identified, one segment of the book is dedicated to continuation patterns - configurations that show up during established trends and traditionally lead to an extension of the trend. And in the chart above, the current setup is a classic.
I said it last week and I'll say it again.
From here, the market needs to get some relief from its overbought condition. This can happen in two ways:
So far, we've gone the consolidation route.
However, I'm still expecting a modest (profitable) pullback before it heads upward once again. Usually, August is a more volatile month on the markets, but I don't think that will be the case for most of this month.
Just like a high-jumper at the upcoming Olympics, sometimes the market has to bend its knees before it jumps higher.
Right now, there are only so many catalysts in play that have the potential, at least, to snap these markets out of their pattern and send the bulls out once again...
Considering all this, I think we can look for some kind of break in this "tightness" in the next week or so, and I'll be watching closely. It's a safe bet that there will be some market indecision before the new direction becomes obvious, but I think it will be "up." And to new highs, at that.
Profit opportunities in tight markets like this can be scarce, but our Bill Patalon has found a "door," something called " Public Law 94-29" that opens up the potential to earn $4,000 a month - or more. Click here for his research...
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About the Author
D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.