The holiday season is in full swing and, although it's business as usual in the Members' Area of our site, we've gotten caught up in the festivities and slacked off a bit on the blog. We'll be back to normal programming - providing a handful of articles every week - on the blog soon after the New Year begins. In the meantime, here's a quick update on the state of the markets, as covered in last night's commentary that was provided to members...

Click to read more ...

Over the past week or two, we've enlisted a handful of reasons - both here on the blog as well as in the members area - why the markets may be putting in a top. Here is another...

S&P-500: A Market Top?

Do you notice what is going on near the top-right of the picture (this is the daily chart of the S&P-500 showing price action overlaid with the bollinger bands). Notice that the upper bollinger band has just about come back into the picture, and what has it done...?

Click to read more ...

Last Tuesday, we showed you how the bollinger bands on the weekly chart of the S&P-500 were starting to tighten (see 'Another Sign Of Danger for the Bulls'). The tightening has continued this week.

S&P-500 weekly chart with bollinger bands

Generally speaking, tightening Bollinger Bands are a sign of a decrease in volatility on the level of trend that is being featured (in this case, on the intermediate/major trend). The interpretation of tightening bands is that the trend is in a stalemate as opposing forces (bulls and bears) play a game of 'tug of war.' None of the sides is stronger than the other at the present juncture and as such the fight continues until one side gives up or is defeated. Once that happens, the energy that has built up within the coiling pattern is released and prices burst out of the consolidation zone and into a sharp new trend.

Coming back to this specific chart, you'll notice that over the two weeks preceding this one, the lower band was rising and the upper band was actually falling slightly. This week, the lower band has continued to rise but the upper band has actually flattened somewhat. Strictly speaking, that still constitutes a tightening because the dispersion between the bands is still falling.

Nuances aside, the important fact to note is that prices have now moved to the level of the flat upper band and, one would assume, will face stern resistance from the same. The bulls will need to muster the strength to push the upper band out of the way fairly soon, if the index is not to find itself putting in a minor/intermediate top at around these levels.

Take a look at the weekly chart of the S&P-500, specifically the Bollinger Bands...

S&P-500 Weekly: Tightening Bollinger Bands

Do you notice how the Bollinger Bands are tightening. Look at how the upper band has started to bend inwards and is falling heavily on price action?

Now, it is only the middle of this week. So, if there is some upside action over the rest of the week, which is a holiday shortened one, there is the possibility that the band could be pushed out of the way by the rising prices. But if the index closes Friday at these levels or lower, watch out! This is a recipe of disaster. At the very least, a move to the 20wMA (1040) will be called for and, if that level then breaks, a move to the lower band (currently at 955 and rising) will be on the cards.

So keep an eye on the weekly close of SPX. The bulls will want to ensure that there is a much higher closing than the current 1100 or so (preferably above 1125-1130). The bears will want the index to close the week at or below 1100.