« The Real 'Culprits' in the Bear Market - The Upper Bollinger Bands »
Friday, March 20, 2009 at 01:59PM | Asher Pinto While the chattering heads will variously blame Washington, Fannie/Freddie, AIG, Bear Stearns, Ben Bernanke, Alan Greenspan, George Bush, Hank Paulson, Phil Graham and the like for the mess that we are currently in (and no doubt that crowd is amongst the list that is the most to blame), the best guide to the markets from a trading and investing perspective over the past 18 months or so, has been the upper bollinger bands on the daily charts of the major market indices.
The chart below showcases the action over the past approx. 25 weeks on the S&P-500, the Dow Jones Industrials, and the Nasdaq-100 Index. Notice that each time the indices have neared or reached their respective upper bollinger bands over this phase (and this has also been the case since October of 2007), a minor or intermediate top has formed and prices have been sent to lower levels.
Despite having just undergone the sharpest 8-day spurt since the 1930s, the markets have not been able to break the trend and it looks like resistance has been found at the upper bollinger bands once again and the beginning of the next downward leg is upon us...
S&P-500, Dow Jones Industrials, Nasdaq-100 finding resistance at Upper Bollinger Bands
Now, it will be disingenuous of us to sign off on this article without reminding readers that upper bollinger bands prove to be a source of resistance only when they are flat. That has been the case upon each testing of the upper band over the past several months.
At some point, that trend will change and the upper bands will start to rise and move out of the way, allowing the markets to finally regain lost ground, and astute traders will want to be on the lookout for such developments.
Until then, enjoy the fact that we have access to the great art of technical analysis, which has provided us with another indispensable tool by which to decipher the secrets to the stock market (or at least to decipher the potential for the formation of a minor/intermediate market top).
Reader Comments (1)
thanks a lot dear, im very interesting for your article. im very impresing for this :)