Are Stocks Coiling for Another Move?

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Stocks are squeezing into an increasingly tight range with some key events on the horizon. Some chart watchers may wonder if another big move is coming soon.

First consider the shrinking monthly swings on the S&P 500:

  • February’s range was 303 points (2533 to 2836).
  • March’s range was 212 points (2590 to 2802).
  • April’s range was 166 points (2554 to 2720).

Bollinger bands, a popular indicator for studying ranges and volatility, are at their tightest reading for the S&P 500 since early January. Low values for the bandwidth sometimes anticipates periods of increased movement, such as August 2015. The yellow bands on the top chart below are Bollinger Bands, while the first subchart shows their narrowing distance (bandwidth).

Widely followed moving averages like the 50-day MA (thick red) and the 200-day MA (thick green) are converging. They’re now just 71 points apart, their closest since January 2017. These two moving-averages are also forming a triangle, another pattern that can foreshadow a coming move higher or lower. (See the white line in the middle subchart.)

Then you have Wilder’s Relative Strength Index (RSI). This oscillator (bottom of the chart) can show whether the market is “oversold” (due for a bounce), or “overbought” (due for a pullback). But right now it’s smack dab in the middle of its range. Translation: It could go either way.

And as a reminder, these are the events we’re waiting for that could trigger a move:

  • Apple (AAPL) earnings after the closing bell tonight. Investors are bracing for weak iPhone sales but eager for news of capital being repatriated for a buyback.
  • Federal Reserve rate decision at 2 p.m. ET tomorrow, May 2. No one’s expecting a rate hike but the statement will be closely eyed for a sense of how aggressive policymakers will be at their next meeting on June 13.
  • Non-farm payrolls, usually considered the most important economic number each month, come out 8:30 a.m. ET on Friday morning.

In conclusion, it’s not clear which way the S&P 500 wants to go. But some indicators suggest another big move could be approaching.

S&P 500 index showing Bollinger Bands, moving averages and RSI
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.