Trading Alert: Expect strong market expansion (NR7) given recent coiling action

After holding tight for the last two days (see red circle) the market indexes are poised for only one direction: expansion. The market in the last two days has formed what are called Nr7 patterns. Basically, its the most recent high and low range that is smaller than the prior 6 days.

Markets often explode out of these coils with definite directional bias and often represent pivotal trading sessions. An analogy would be a spring tightly wound triggered to explode given the right conditions.

The S&P 500 and the Dow are exhibiting such a pattern with a large consensus arguing that we are near the bottom. Arguments in favor include: historically high volatility, severe pessimism, a technical double bottom, attractive fundamental valuations and weekly charts reflecting a strong upward buy divergence (MACD).