Consecutive Days above the +4σ “modified Bollinger Band”

By Lawrence G. McMillan

The $SPX Index has stayed above the +4σ “modified Bollinger Band” since Feb 13th – a total of 13 trading days and counting.  This is rather rare, so we thought it might be interesting to see just how unique this is – and to see what happened at similar stages in the past.  In the following paragraphs, “days” refers to trading days.

March 2010: SPX stayed above the +4σ Band for 14 days.  The resulting sell signal was not a good one as $SPX continued to climb up the outside of the upper Band.  Eventually, after another sell signal in mid-April, $SPX broke down sharply in the flash crash of May, 2010.  But whether one can credit the mBB sell signal with calling the “Flash Crash” is highly debatable; more likely, it was luck.

November 2004: $SPX was above the +4σ Band for 11 days.  The resulting sell signal was not successful.  When $SPX finally did decline some (in January 2005), it was more of a trading range than a true bearish trend.

November 1996; $SPX was above the +4σ Band for 18 straight days – the longest streak on record.  This sell signal was not particularly great, but it did produce a small profit after the market first traded higher, but then dropped quickly in mid-December...

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