Trading Nation

Since 1979, this has signaled a breakout in stocks

Which way will the S&P break?

As the market trades in one of its tightest ranges in history many investors are bracing for a big move either up or down. And according to one closely watched technician, the bet is higher.

"We ultimately think we get an upside breakout," technical analyst Ari Wald said Friday on CNBC's "Trading Nation." The S&P 500 has been in a tight range of 2,070 on the downside and 2,135 on the upside.

And there are two reasons behind Wald's optimism: the S&P 500's rising long-term moving average and the relative outperformance of small caps.

"The S&P 500 has been consolidating above its 200-day moving average," said Wald, head of technical analysis at Oppenheimer. "A general rule is that if consolidation occurs above this moving average, the move out of the range is most likely to be higher."

But more importantly to Wald is the recent performance of small-cap stocks. The hit an all-time high last week and has outperformed the S&P 500 on a year-to-date basis. "When that index does well it really shows that investors are embracing risk," said Wald.

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And according to Wald, more than 35 years of history suggest that when the Russell 2000 breaks out, it tends to be followed by above-average performance in the S&P 500. "Since 1979, when you get a Russell breakout, the next six months [in the S&P 500] tends to average 8 percent and that's versus about 5 percent given any six-month period," he said. "We think the evidence lies bullish and we get the upside move." (TWEET THIS)

Curtis Holden of Tanglewood Wealth Management said Friday on "Trading Nation" that long term, "this is not a market that you want to be betting against."

Although he does believe there could be some turbulence in the near term. "We have the seasonality working against you and also the fact that we haven't seen a meaningful [pullback] in about eight months," said Holden. "But once we get some of these headwinds worked through and once we get a little more clarity in the market, we would expect that we're going to see stocks moving higher."

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