Trading Nation

One simple chart points to a stock market rebound

One chart points to bigger S&P 500 rebound

Wall Street's big rebound from a days-long sell-off lost a little steam Tuesday.

The Dow Jones Industrial Average, up more than 200 points at session highs, edged back by the middle of the session, while the S&P 500 retreated from its own highs. A day earlier, both indexes suffered their worst day of the year as trade tensions between the U.S. and China escalated.

Paul Hickey, co-founder of Bespoke Investment Group, says the stock market's upward march will resume.

"Step away from the noise," Hickey said on CNBC's "Trading Nation" on Monday. "Look at the S&P 500, just at its 200-day moving average, take away the daily day-to-day movements. When you look at a chart like that, what you see is that the S&P 500 is essentially, with all the flopping up and down is done, is essentially right where it was 18 months ago."

Since the beginning of 2018, the S&P 500 moved as high as a record 3,025 last month and as low as 2,346 during its December slump. The 200-day moving average, which smooths out intraday and day-to-day volatility, shows the S&P 500 in a period of consolidation over this stretch.

Hickey says this is the third consolidation phase the S&P 500 has been in since the lows of the financial crisis. Aside from those stretches of stasis, the markets have been on an upward trajectory, a trend Hickey expects to resume.

"We've just recently seen the 200-day move to new highs out of this sideways range. So, that tells you that the trend still is intact," said Hickey. "This is more likely to just be some more of this noise that we've seen repeatedly over the last several months."

This particular sell-off also has a historical precedent, says Hickey. Since the SPY S&P 500 ETF started trading, there have been 18 times that it has fallen by more than 1% on a Monday following a week in which it lost 2% or more. From that Monday close to the following Monday's close, the SPY ETF added an average 2%.

"You tended to see a rebound in equities. So, that would go along with ... our whole idea that the last three days has been a shock to the market, but it's not necessarily a major long-term shock to the market," said Hickey.

Charts point to relief ahead after sharp sell-off