Good Morning, Traders. Nothing is happening yet, but something feels like its going to happen. As much as we keep mentioning in this space how the Nasdaq and its related stocks look unappealing, the S&P just keeps winding itself up tighter and tighter at the top of the year's range. One of the most important concepts that can make you money over and over is simply understanding that volatility contraction leads to volatility expansion. Simply put, bigger moves in stocks or markets generally follow a series of small moves where bulls and bears "argue" over price. When one side eventually loses and has to reverse itself to cover and then possibly initiate a transaction in the new direction, an explosive move often occurs. Whether or not this will happen in the S&P is still unknown but it should be noted that the first part of the equation is happening, that being the contraction in volatility. Notice in the chart below how over the last five trading days, highs and lows have been relatively equal resulting in a range that is tight and orderly. In our Professional Trader's Squawkbox we often call this phenomena, "candles lining up, same size bodies". The range is also narrowing somewhat within this same time period, resulting in the small symmetrical triangle annotated below.  Stay tuned. We should get a pop in either direction soon. With the strength in the Dow and S&P as of late, the smart money would have to be on the long side for now, relative weakness in the Nasdaq notwithstanding. Overall bias remains upwards with nearterm bias sideways to up.

Peter Reznicek is the Chief Equity Strategist and a principal of the Prana Fund, a domestic hedge fund, and ShadowTrader, a subsidiary of thinkorswim which provides coaching and education to its clients on both intraday and swing trading of equities. For a free trial to the full version of The Big Picture or to learn about ShadowTrader's other services, visit shadowtrader.net or send an email to preznicek@shadowtrader.net.