I like to observe the indices from all degrees of trend, from hourly to monthly and even yearly. The charts can tell you a lot. I am using the hourly charts less these days, because the moves in the market often require a larger perspective. However, the hourly charts caught my eye and, thanks to Roy, a subscriber, his nudge prompted me to view all the pertinent charts.

What I am referring to is the tightening of the trading (Bollinger) bands. The trading bands on the hourly SPX chart were narrow for a considerable time in July and August. However, they did tighten at the August 18 peak, indicating that a large move was due.

This tightening is even clearer now and the testing of the top band along with the reversal on the 17th is yet another forecaster of a very large move, possibly larger than the August decline, since the SPX did not test the upper trading band in August. This is a classic sign that a testing of one side of the band combined with a reversal through the other side presages a very large move in the opposite direction.

The VIX hourly chart shows the same phenomenon in the opposite direction. Again, the VIX did no challenge the lower band in August, but last Thursday it has.

The Hi-Lo shows an even tighter narrowing today than it did in August. A much larger move may be afoot. The fact that the Hi-Lo dropped beneath the bands is a good indicator that the decline is imminent.

Regards,

Tony

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Disclaimer: The content in this article is written for educational and informational purposes only. There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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