SPX Daily Chart Tight Bollinger Bands Indicating Strong Move Ahead

The chart shows the tight Bollinger Bands (BB) in place now; the tightest in a years time. The dotted centerline is the 20-day MA and the BB's represent the deviation from the centerline, and show how far out of whack price becomes, either on the low side or the high side. When BB's come in tight they squeeze a dramatic move out and this move can be up or down. When price pierces thru or touches the far side of the BB, price typically moves back to the other extreme side, at a minimum, moving back to the 20-day MA.

See how the October rally began with price piercing the lower BB in early October signaling a market bottom? Late October the rally ended when price pierced the upper BB and moved down. The November market sell off ended when price pierced the lower BB and recovered to begin another leg up for the 5-month bull rally. Note that late January price touched the upper BB but the liquidity in the markets (quantitative easing) is so powerful that price barely made it back to the BB centerline before bouncing again. February touches of the upper BB were also ignored due to the momo. The red rising wedge and negative divergence spanked price down to the lower BB over the last couple weeks, but price is now recovering again.

The tight BB may already be squeezing out the upside move and a price may spike well into the purple circle and pierce the upper BB again, however, the negative divergence setting up, and low volume participation places a strong upside move into question. Thus, watch the tight BB squeeze out a move in the coming days. Projection is a move down for markets and if a further move up occurs in the coming days, this will lock in the negative divergence to provide a move down directly after any pop higher. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

Note Added 3/13/12 at 4:21 PM: Large market melt-up today, thus the up move in place this morning over the last four days was already the squeeze-out move for the tight BB in progress.  Today popped price to continue an expected large move (although now we do know the direction for sure).  With the candlestick piercing the upper BB now, that will signal a move back towards the middle BB (20-day MA) which is 1364 and sloping upwards.