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I have become quite a fan of Bollinger Bands over the last couple of years. Mind you they have not helped me make truck loads of money, Yet, as I have been largely out of the market – and still am out 100%. I follow Elliott and Bollinger and look for the big steady trends as I like the safe easy money. And having said that, at the other end of the spectrum I am a scaredy cat, and when real danger looms I am not to be found. And that is why I bailed out early 2008.
But I guess I could be waiting a good while as there seems to be little sign of sustained economic recovery ahead let alone a long trend. And it does not worry me in the slightest.
So in the meantime I have to satisfy myself with brief flirtations with the market as I am reluctant to enter into a long term relationship unless it is the right one.
But in having a look at Bollinger on a weekly chart I noticed that we are seeing the narrowest of bands in almost three years:
click to enlarge
For those not familiar with Bollinger Bands, when the bands narrow this generally means a rather quiet market in contrast to the widening – measured by vertical height between the bands – indicates a volatile market. Note the ultra wide bands late 2007/08.
Over bought and oversold phases are noted when the market touches the upper and lower bands and we can also see for the first time in months the market has hit the upper band.
When the bands are turning down it is more than likely we will see the market ease off somewhat when it touches the upper band – perhaps back to the moving average of the bands.
You should also be aware that we are viewing a weekly chart here and watching bands move on this time frame can be a bit like watching grass grow.
But one should also not dismiss the unexpected. Could this be the dead calm before the storm? I am inclined to think not but I never reject any possibility.
Enjoy the ride
Tom Scollon
Chief Analyst
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