Wednesday, December 2, 2009 at 02:46PM | Asher Pinto
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.
« -~-~>Tightening The Screws<~-~- »
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.
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.