Nervous trading range

By Lawrence G. McMillan

A week ago Monday, the stock market survived a bout of heavy selling with a late-day reversal that eventually carried the Standard & Poor’s 500 Index from an intraday low just below 1,140 to recent highs near 1220.

Those numbers roughly identify the trading range that has contained the S&P 500 SPX -2.56%  since the early August lows. Volatility has remained high, so the index has been able to traverse the range swiftly and often. The large, swift moves tend to reflect the nervousness of both bullish and bearish traders.

We have previously mentioned that the channel (some may correctly call it a “pennant” or a “flag”) on the SPX chart is significant. It is shown on the graph below. The most important thing about this pattern is the lower boundary. If that is violated, then the market will enter a new bearish phase that could have targets as low as SPX 1000 . However, these patterns are not always completed. That is, they don’t always lead to a violation of the support line.

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