Modified Bollinger Band Sell Signal Registered

By Lawrence G. McMillan

For some reason, traders seemed to take the benign Fed meeting announcement as negative.  At least they sold after the meeting ended.  That’s the fourth time this year that a Fed meeting has induced selling, and in the previous instances, the selling continued for a while – weeks, in some cases.  The late selling yesterday pushed $SPX down just barely far enough to generate a sell signal because the index closed below the upper 3-sigma modified Bollinger Band.  These corrections usually carry past the 20-day moving average, which is at1720 right now.  If it were to carry all the way to the lower bands – which other recent corrections have done – that would indicate a move to 1680 or so (although the lower bands move each day due to the price changes in $SPX as well as changes in volatility, so they could well be lower in, say, two weeks when $SPX falls towards them).  Considering the overbought nature of this current market, and the potential for almost a 100-point drop in $SPX, I would think that a fair amount of panic would result from such a move.

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