Having fun with the endless chop that started in early August? Markets are consolidating inside a well defined price range. 2945 on the top end and 2822 on the bottom end of the range for $SPX. That range was established on August 2 and August 5th. Since then markets have been bouncing inside that range for weeks.
Amazingly accurate how algos have rejected each side, but the upper range in particular.
It’s become a running joke on my twitter feed:
The algos are laughing with us.
Or at us? pic.twitter.com/ZtJNrubDwZ
— Sven Henrich (@NorthmanTrader) September 3, 2019
All joking aside markets will break out of this range either to the upside or downside and when they do the next move may be of consequence. In technical terms one can expect what is termed a measured move equaling the size of the consolidation range.
Example: 2945 – 2822 = 123 handles.
Add that to the top of the range and the upside range suggests a move toward 3068 on $SPX or 1.3% above the July highs.
The flip side is a measured move to the downside: 2822 – 123 handles = 2699 $SPX, just below the June lows or 11% off of the July highs.
What’s intriguing about either scenario is that either would result in a move landing at a key market pivot:
The downside break would bring $SPX back to its open February gap and fill the June gap in process. This could set up for a nice rally, especially if that move were to set up with the implied $VIX target in its current bull flag constellation.
The upside breakout would bring $SPX right back toward the broken wedge trend line resistance and perhaps produce another unsustained high. Why? Because it would also meet once again the broadening wedge trend line resistance:
What factors will drive the decision for either a break up or breakdown in September? See Thunderdome for this discussion.
Rest assured we will not stay in this range, but be aware that a move of size is coming. Measured moves are not a guarantee, but they define the risk range one has to account for once a break of the consolidation range confirms.
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Author: Tyler Durden