There’s one thing in the charts that suggests the market is set to stall: Trader

Posted by jbrumley on April 21, 2017 8:29 AM

By Annie Pei, CNBC

While markets regained some ground on Thursday after a few tough sessions, trader Todd Gordon believes the stock rally may soon stall.

The TradingAnalysis.com founder says that the S&P 500's recent close below its 50-day moving average on April 13 suggests that the market will soon start trading in a sideways range.

"That's the first close below the 50-day moving average after an extended uptrend in the stock market," said Gordon Thursday on CNBC's "Trading Nation," referring to the April 13 close. "So that's where this little piece of analysis begins."

The trader's analysis is based on three previous times when the S&P 500 closed below its 50-day moving average, incidences that kicked off periods of inertia for the index. The most recent was in September of last year, right after the S&P 500 had rallied through the summer from its Brexit lows. Following that move below the 50-day moving average, the S&P traded in a sideways range "that lasted 59 days."

042117-1

Before September, the S&P had fallen below the trendline in May 2016, after which the index spent 47 trading days in a sideways consolidation, according to Gordon.

042117-2

Finally, Gordon goes back even further to point out the same trend back in December 2015 heading into 2016. Again, the trader points out that the S&P fell below the 50-day moving average, and then saw an "82-day period of back-and-forth" before breaking out and rallying again.

042117-3

"So if history is to serve as to any indication of what's going to happen in the future, we might have approximately 63 days of sideways back-and-forth here," said Gordon, which is about the average of the three previous periods of sideways trading.

This leads Gordon to believe that "a more range-bound strategy" in the options market is the best way to play the market in the short-term.

Courtesy of CBNC

BECOME A BIG TRENDS INSIDER! IT’S FREE!