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Friday, 28 September 2012

Bollinger Band Moves

SPX closed back above the daily middle bollinger band yesterday and that was unexpected and rare. Generally speaking on a cross significantly above or below the middle bollinger band on the SPX daily chart, there is then a move to the next primary support or resistance level, which is either the next bollinger band, or a major moving average (the 50, 100 or 200 DMA) lying between the middle and far bollinger band in the direction of the break. I can see about twenty instances of that happening in the last year, and a further ten or so when the middle bollinger band was good support or resistance for continuation.

For the current setup where there has been a clear break of the band and then a re break shortly afterwards without a hit of a primary target between, there are only three previous instances in the last year. All of these broke below the middle bollinger band and then back above, and two of those, both in an uptrend since the October 2011 low, then rose to hit either a key MA or the upper bollinger band. The one that didn't was in a downtrend before the October 2011 low. Statistically this close back above is therefore a bullish looking break with a target at the upper bollinger band, currently in the 1482 area, though this signal is weakened by the failure to hit SPX rising channel support at the low, with the 50 DMA in the same area as that support:
SPX channel support has not yet been hit and I would normally expect that to be hit before another hit of channel resistance. If we see new highs before that hit, there is also a much higher chance in my view of a strong reversal at those new highs that would then break the rising channel. We may therefore still see a reversal to hit channel support or a consolidation sideways into that support before the next move up gets going. I have declining resistance on SPX in the 1458 area and a break over that would strongly suggest at least a test of the highs:
On ES the rally yesterday stalled at broken support at 1444.50, and that is immediate resistance. Above that there is declining resistance from the high in the 1449 area and a break above would look bullish. A break below short term rising support in the 1434.5 area and then the 1432 support level would look bearish:
On TRAN the broadening descending wedge has now broken up. I think a low there is likely to be in or at least close. Currently there is a model potential double-bottom setup with a target at 5111 on a higher high over 5003.28:
CL and EURUSD both broke up yesterday but I won't post those charts today as I'm running out of time. The chart I'll show instead is the very interesting TLT chart here. This chart doesn't fit with my QE3 scenario at all and I'll be talking about that more in my weekend post or on Monday. Short term though TLT has hit falling wedge resistance and reversed there. This is a simply lovely technical wedge with textbook trendline and pattern reversals within the wedge so on a break below the current support trendline and (yet again) key 123.5 area support, I have a downside target within the wedge in the 115.5 to 116.5 range. If that happens then the low on equities has most likely already been made or is very close. Obviously if the TLT wedge breaks up (68% bullish pattern) then that will look bullish for TLT and bearish for equities:
I'm torn here. The bollinger band setup is bullish, but there is most definitely unfinished business on the downside as the obvious target at channel support and the 50 DMA in the 1410-15 SPX area has not yet been hit. I'm watching declining resistance on ES and SPX and a break above will mean that at least a retest of the highs is likely. That failure to hit channel support before a test of the highs has longer term bearish implications however, as does the falling wedge on TLT, which should not really be there if we are to see the usual QE script play out here, with bonds and USD falling hard while equities rise strongly. Food for thought.

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