There’s one thing in the charts that suggests the market is set to stall: Trader

While markets regained some ground on Thursday after a few tough sessions, trader Todd Gordon believes the stock rally may soon stall.

The founder says that the S&P 500's recent close below its 50-day moving average on April 13 suggests that the market will soon start trading in a sideways range.

"That's the first close below the 50-day moving average after an extended uptrend in the stock market," said Gordon Thursday on CNBC's "Trading Nation," referring to the April 13 close. "So that's where this little piece of analysis begins."

The trader's analysis is based on three previous times when the S&P 500 closed below its 50-day moving average, incidences that kicked off periods of inertia for the index. The most recent was in September of last year, right after the S&P 500 had rallied through the summer from its Brexit lows. Following that move below the 50-day moving average, the S&P traded in a sideways range "that lasted 59 days."

Before September, the S&P had fallen below the trendline in May 2016, after which the index spent 47 trading days in a sideways consolidation, according to Gordon.

Finally, Gordon goes back even further to point out the same trend back in December 2015 heading into 2016. Again, the trader points out that the S&P fell below the 50-day moving average, and then saw an "82-day period of back-and-forth" before breaking out and rallying again.

"So if history is to serve as to any indication of what's going to happen in the future, we might have approximately 63 days of sideways back-and-forth here," said Gordon, which is about the average of the three previous periods of sideways trading.

This leads Gordon to believe that "a more range-bound strategy" in the options market is the best way to play the market in the short-term.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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