Conflicting Signals: $VIX Spike Peak & Modified Bollinger Band

By Lawrence G. McMillan

Two weeks ago, as the market turned downward, a strong sell signal was generated by the “modified Bollinger Band” system.  Last week, when there was a strong reflex rally, we received a $VIX “spike peak” buy signal.  That system, too, is a powerful system usually.  So which one is right?  This article will explore the answer to that question.  Even the stock market itself seems to be having trouble deciding, as the Standard & Poors 500 Index ($SPX) has bounced back and forth in a relatively volatile fashion, but within a trading range, ever since these two conflicting signals occurred.

In this article, we review the past occurrences that are similar to the current situation, before making a decision as to how to proceed.

In the last issue, we wrote about how strong the moves are when these two systems are in agreement.  The most recent case was the coinciding buy signals on February 6th, after which $SPX blasted over 100 points higher in a little less than a month’s time.  

But now they are at odds, and that presents an entirely different demographic.  There have been nine times since 2007 that these two have generated similar patterns to the current one...

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