Monday, December 7, 2009

Look At The Daily SPX And All That Support

Here is the glaring thing that stands out to me and says something has got to give very soon. The Bollinger band width and the continuing consolidation. 

The Bollinger Bands operate as a good wrapper confining the markets moves to the specific range. Stockcharts defines Bollinger Bands: An indicator that allows users to compare volatility and relative price levels over a period of time. It consists of three bands designed to encompass the majority of a security's price action. Prices will often meet resistance at the upper band and support at the lower band. See ChartSchool article on Bollinger Bands.

Currently the width of the BB's on the daily chart are an extremely low 32 and dropping like thy have not in a long time. The upper BB is just now showing back up on this chart and is at 1116.97 (it stopped the market at 1119 on Friday) and the lower is at 1084.79. Now, the BB 20ma is at 1100.88 which means price is trading in a 16 point window between the upper BB and the BB 20ma. That is as narrow as I can remember.

A narrow BB is a signal that volatility should be coming soon.Unfortunately all the volatility recently associated with narrowing BB's has been to the upside. What will make this time different and cause volatility to spike down rather than up? To keep it brief (and you will see in more detail in posts to come), the dollar may have bottomed and the horrifically overbought indicators with the massive divergences to price should be to much for the market to overcome.

This top has drawn out like no other in the recent C leg run up. Most tops have averaged 7 to 9 days before any sort of correction (see blue boxes). Well, guess what? No correction this time and this top is now on its 20th day. That is unprecidented for this run off of the 667 bottom. The point of recognition is near as the bulls and bears werstle in this low volume arena. The shorts have all been squeezed and the bulls are out of buying power (and upgrades, liquidity, and all other sorts of tricks). I believe you are witnessing a top being set. The only other option is this is a Rectangle Continuation pattern. Which I absolutely hate the idea of, but it is worth mentioning as any break to the upside of any significance (as unbelievable and undeserved as it would be) could lead to much higher highs no matter what the indicators say.

Lets look at all that support in detail since I think we're gonna drop soon.

BB20ma - 1100
Lower BB10848
38% fib off of 1030 low - 1085
50ma - 1079
50 to 62% fibs off of 1030 low - 1074-1064
Lower Trendline - 1055ish
38% fib off of 869 low - 1023
gap - 1018
50 to 62% fib off of 869 low - 994 - 964
The previous lowas at 1030/1020/991/979
Gap 910
Last major low 869

That is a whole lot of junk to get thru so calling places to stop may be difficult with any precision cause there will be so many options. When it get's turned I'll keep you updated on important targets. The main thing to take from this post is the width of the BB's. Keep a close eye on them.

GL and happy holidays!