What to watch

Stocks poised for big move, but which way?

The stock market, quiet and trendless as it has been since hitting a new high in early March, resembles a “coiled spring,” say market watchers at Bespoke Investment Group, who have been analyzing charts of large-company stock indexes to glean the market’s next move.

The sideways trading action in the stock market can’t last forever. Eventually, something’s got to give, the investment research firm said in a report after Monday’s market close, a day stocks barely budged. “A big move,” Bespoke says, “is on the horizon.”

But what isn’t clear is if the stock market will bust out to the upside and make new highs, or whether it will break down and suffer a drop of 3% to 5%.

What Bespoke has spotted in the charts of the Dow Jones industrial average and Standard & Poor’s 500 is a series of “lower highs,” which suggests buying interest has waned. But both indexes have also been able to stay above their average price over the past 50 days, which means the upward trend hasn’t been broken.

It’s a tug of war of sorts. “This sets the indexes up for a breakout or breakdown,” Bespoke says.

The most likely direction of the next move is up, the firm says. But it lays out both scenarios: If the Dow, which closed Monday at 20,658, turns up, it could climb as high as 21,500, or 4% higher. The downside scenario has the Dow dipping nearly 1,000 points, or nearly 5%, to 19,700. The S&P 500 has similar upside and downside risk.