How Long Can This S&P 500 Consolidation Continue?

The SPDR S&P 500 ETF Trust SPY is up 10.5 percent so far in 2017, but traders paying attention in the last couple of weeks may have noticed that the stock market hasn’t been doing much moving at all lately. Since July 20, the S&P 500 has been range-bound between 2465 and 2485, never closing a session above or below those two levels.

Technical traders recognize the low-volatility sideways trading pattern as a consolidation period. Consolidation periods are periods of time when a stock or market takes a break from a prevailing trend and simply churns sideways or drifts in the opposite direction of the overall trend.

Markets rarely move in on direction for long, and even long-term bull market rallies or bear market sell-offs are typically filled with retracements and consolidation periods.

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For any traders worried that the S&P 500 rally has run out of steam, there's nothing sinister about the recent consolidation period at this point. In fact, it’s at least the fourth such consolidation period for the S&P 500 since the beginning of December.

A view of the one-year S&P 500 chart shows a clear rally from November’s low of 2083 to the index’s new all-time high of 2484 in July. However, the chart below breaks down several consolidation periods during that time in which the market made no meaningful move higher.

These periods can last anywhere from days to months at a time. But as long as the S&P eventually breaks out of the consolidation range to the upside, the bull rally is preserved.

So far, the current consolidation period is looking very similar to the previous one in June. If the market repeats its pattern, it may begin to drift slightly lower in the weeks ahead before eventually bouncing off the 50-day simple moving average and pushing to new highs.

Joel Elconin contributed to this story.