The run-up from the March lows has been truly amazing – a fast-paced, steep run. Now, after a nine-week sprint, the major markets have taken several weeks off their breakneck pace for a well-deserved breather.

The S&P-500 has taken some time to pause and consolidate, having moved laterally for the last four weeks. Likewise with the other major indexes tracked in this column. Each has spent the last several weeks trading in a sideways pattern, consolidating the gains from the prior sprint off March’s lows.

An interesting factor to consider while interpreting this week’s market activity is the decreasing trade volume over the two previous weeks. True, prices have closed at the lower end of the trading range for each of the last two weeks; however, there have been fewer trades in those weeks – suggesting buyers are on the sideline, watching for clues during this consolidation.

Resultantly, the market closed prior to this holiday weekend with a quiet groan. The Stock Market will be closed on Monday (at least in the USA) in observance of Memorial Day.

This week, interesting things have happened within the GMT (General Market Trends indicator). Two more indexes saw their weekly Short-Term average turn green.

Both the Russell 2000 and the S&P-500 passed another significant milestone in their attempt to convince market participants that the bullish bias is legitimate. Only the Dow-30 remains bearish on the weekly Short-Term trend.

In reading the daily charts, the Nasdaq Composite Index is again bullish in the Micro-Trend; however, the other three indexes remain bearish in this timeframe (see GMT indicator in side panel).

The below chart is a weekly view of the S&P-500 market index. On it, I’ve drawn two horizontal blue lines; the lower to mark off support while the upper line indicates resistance.

Also, note the green, diagonal line I’ve drawn beneath the pivot lows, marking the trend line of the sprint off of March’s lows. A rather steep run, lasting nine weeks for the S&P-500.

First, take note of how the last four weeks’ price activity has moved sideways, within the blue lines that mark off support and resistance. Within the blue lines, the first of four weekly bars is a wide-range, white bar. This was the last week of the nine-week sprint off March’s lows.

The next three bars are consolidation bars, testing the bulls’ conviction at these higher price levels. It is important to note, none of these three consolidation bars has broken the low of the week-nine, white bar. To date, on the weekly chart, we have seen a consolidation, but not a pullback.

Steep trends are typically more difficult to sustain. Take a look at the green trend line I’ve drawn, connecting the pivot bottoms on nine-week up-trend. Note how the first red bar inside the consolidation bands is the first weekly bar to violate this trend line.

According to technical theory, that violated trend line will now become resistance (at least in the near-term).

In my opinion, this is a minor factor in our analysis. I don’t expect the market will rally, again, with such fervor until it’s moved far enough away from that steep trend line so as to invalidate its use.

I think a more literal use of this trend line is simply validation that the nine-week sprint has ended, or at least paused.

When you look at the S&P-500 daily chart, below, you’ll see that I’ve again drawn blue lines to denote support and resistance. Also, I’ve drawn a green line to mark off the up-trend from March’s lows.

I’ve drawn these lines in precisely the same positions as on the above weekly chart. The difference is you can now see the interplay of daily activity within the weekly bars.

The additional boxes I’ve drawn on this daily chart show the relationship of prices over the last three weeks. The yellow box is this week’s price activity. The light-blue box represents last week’s pricing, and the red box is pricing from three weeks ago.

Two things of note: 1) three weeks ago (red box), prices opened at the bottom of the week’s range and closed at the high, and 2) the following two weeks both closed near the bottom of their respective week’s range.

Trading over the last three weeks has moved entirely within the bounds of the first week (red box).

The S&P-500 Index is consolidating. That’s a beautiful thing.

I really like the consolidation pattern over the last several weeks. Support is doing what support is supposed to do, yet resistance is still far enough overhead that prices have not yet tested it. There's still some room to run.

Ideally, prices will become firm at the support line (lower blue line on the above charts) and make a move, upward, to test resistance.

That would be the ideal. Reality may prove otherwise. Keep in mind, the S&P 500 index has not yet experienced a true pullback on the weekly charts since consolidation began three weeks ago, although the daily chart provides ample evidence of price pullbacks within this range. According to technical theory, if the support level holds, we may not see a pullback beneath the lower blue line on the weekly chart.

Assume, for a moment, that prices do fall below that lower, blue support line. Is that the end of the rally? Perhaps not. Depends on the conviction of the bulls waiting in the wings. It could be that a minor breach of support and a subsequent climb back into the consolidation range would further strengthen support at that level.

To date, on the weekly chart, since the March lows we have seen only one price pullback. That occurred five weeks ago, just before the (then) overhead resistance level was first penetrated (refer to above weekly chart and count seven candlesticks off the last red bar in March).

Price pullbacks are both a normal and a healthy thing. They do occur in all timeframes, weather viewing a daily or weekly chart.

The key thing to watch for is a succession of higher lows in the trend, similar to the above-mentioned week-seven pullback on the weekly chart.

These key points become factors in determining the strength of the trend. So long as a future pullback doesn’t violate a previous key pivot, higher low (for example, the week-seven pullback), the trend remains valid.

To say it another way, even if the S&P-500 should breach support at the blue line, so long as it recovers before breaching the week-seven pivot low, the up-trend remains valid. Should that occur, the next test would be for the index to make a new, higher high. Should that occur, the up-trend remains valid.

Kind’a fun, isn’t it.

Please Note: This article is an expression of my opinion. It’s meant to inform your thinking, not lead it. To be a mature investor/trader is to become educated – to think for one’s self. You are responsible to decide the best place for your money.

Always remember, any decision you make will put your money at risk – given that market conditions do change and the value of your investment will rise and fall based on those changing conditions.

Information presented herein was current at time of publication; however, change is inevitable. Data presented may have been overtaken by market events. Should you desire to act on information presented herein, always verify it against current market conditions.

I accept no responsibility for any loss or damage resulting directly or indirectly from the use of content in this article.

Disclosure: At the time of publication, I do not hold any positions in stocks mentioned in this article. I do reserve the right, however, to take a position at some future time.

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