We’ve seen a lot of wild and crazy moves in the stock market so far this month.

And there’s at least one more big move coming…

Take a look at this chart of the S&P 500…

While it sure seems as though the S&P has been all over the place the past few weeks, it has actually been confined to a trading range between 2840 on the downside and 2930 on the upside. All of the bouncing back and forth has created a “consolidating rectangle” pattern on the chart (the blue lines).

The height of the rectangle is 90 points. So, that’s the move traders should be looking for once the S&P breaks out of this pattern.

In other words, if the S&P 500 breaks out to the upside, then we add 90 points to the resistance line at 2930 and get an upside target of 3020 – which lines up quite nicely with the red resistance line at the all-time high in July.

On the other hand, if the market breaks to the downside, then we subtract 90 points from the 2840 support line. That gives us a downside target of 2750 – which lines up nicely with the low at the end of May.

The big question, of course, is… Which way will she break?

I’d say the upside has a slight edge.

Generally, I tend to favor the downside. But, the problem with that at the moment is it seems just about everyone else is favoring the downside as well.

The market rarely rewards the popular opinion. So, maybe the market needs to shake things up a bit with a breakout to the upside – just to punish the bears and shift investor sentiment over to the bullish side.

Either way, traders should respect a breakout of this pattern. A move above 2930 or so will likely set off a quick move higher. A break below 2840 will likely inspire a lot more selling pressure.

It’s possible the catalyst for the next big move will come from the FOMC minutes – which are scheduled to be released this afternoon – or from comments made at the Federal Reserve’s annual meeting in Jackson Hole tomorrow.

Best regards and good trading,

Jeff Clark

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