David Moenning

About the Author David Moenning

David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980 and has been an independent money manager since 1987. Thus, Dave has been live on the firing line and investing for a living for more than 25 years.

Some History on Tight Trading Ranges


Unless you’ve been living in a cave, you are likely aware that stocks have traded in a series of tight trading ranges for the better part of the last six months. And given that the attention span of most traders on Wall Street approaches that of a gnat, this, uber-tight, and yet volatile range, is probably starting to feel almost “normal.”
By now the rules to the game are clear. The fast-money types simply sell stocks each and every time stocks approach either the upper end of the range or a new all-time high on any of the major indices. Then, assuming the bears can find a reason to scare some people into selling, the masters of the financial universe proceed to “buy the dip,” putting in a “V-Bottom” in the process. Rinse and repeat.

However, looking back at history, the current range-bound market is anything but normal. According to technical analyst Jonathan Krinsky, if the current tight trading range in the DJIA continues through the end of June (which is looking more likely by the day), this will become the narrowest trading range (as measured from high-to-low) for the first half of a year in history.

Krinsky goes on to tell us that since 1896, the DJIA has traded in a range of less than 10% a total 19 times. And since the current range from high-to-low is just a hair over 6%, well, it becomes clear the current trading environment is far from normal.

Oh, and lest we forget, the propensity for stocks to put in a “V-Bottom” at the end of every decline isn’t exactly normal either. If memory serves, history shows that the S&P 500 put in a “V-Bottom” once every other year from 1955 through 2012. However, since the beginning of 2013, those quick reversals have been occurring once every other month.

S&P 500 Index – Daily

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So, what should we expect from here? In doing some research, MKM’s Chief Market Technician found that of the 19 prior occurrences when the Dow traded in a range of 10% or less, the DJIA went on to post gains in the second half of the year in 13 times. Thus, if the tight range stays with us through June, the odds of finishing the year strong are right at 68%. Not bad.

Krinsky also found that the Dow’s average return was 8.25% in those positive years and that the Dow only lost ground on 3 of the 19 prior “tight range” markets.

But before you run out and start levering up those Q’s, Mr. Krinsky suggests that this may not be a great time to get complacent. You see, it turns out that the month of June has actually been the worst month of the year for the market over the last decade. Therefore, seasonality may not be the the bull’s best friend right about now.

However, our unemotional weekly market environment model, which is designed to indicate the intermediate-term “state of the market,” currently sports a moderately positive reading at this time. As such, the odds would seem to continue to favor the bulls at this time.

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