Daily Volatility On SPX Shrinking (BB Bands Are Activated To Expand)

I want to show you something interesting with the S&P 500, that is also happening to the Dow and Nasdaq right now.

The 20-day Bollinger Bands on all three major US stock market averages are coming together in a way they haven’t since last August. The width between the bands is about to fall below 2.50 on the indicator on the bottom of this chart, which is something it rarely does. The bands shrink like this when the daily moves of the market get less volatile, but when they shrink like this they soon expand to bring a big market move one direction or the other.

Take a look.

The Bollinger Band width indicator is poised to go below 2.50. The last time it got that low was in August.

The big drop in the markets last year and subsequent rally marked a giant expansion in stock market volatility. In fact, you have to go way back to 2009 to find another time in which the Dow fell more than 10% and then rallied more than 10% in such a short amount of time.

But that volatility began to end last week and now the stock market is drifting. Big drops with big rallies in a short amount of time that then lead to drifting tops is classic action for bear markets.

And the stock market rally has recently exhausted after going through its 200-day moving averages as I talked about Monday.

The bands can continue to narrow like this for another day or two, but they suggest a big move is going to start soon.

I think it’s going to end up being a drop to the 50-day moving average and a close below that level would mean that the stock market rally is not only over, but that the short-term trend has changed to down too.

I am noticing more and more individual stocks are faltering. The 2800-2850 area on the S&P 500 is now stiff resistance. So yesterday I made a trade and sent an alert to Power Investor members.

Not all is lost in going long and buying though!

The reality is there are stocks lagging the market that are going to do worse than the averages will do no matter what they do and some sectors that are poised to just go up. There are times when it is best to buy individual stocks instead of ETF’s.

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