Mon 11/8/10. No signal. upper BB20 analysis.

(Update Tues 11/9/10 7:40 AM EST)
ES futures (+3 now) suggest SPX may attempt a new rally high this morning. To me, that would merely be wave 5 from the 1185ish congestion area assuming SPX doesn't take off to 1240 and make a new RSI high. If SPX stalls at 1230ish, we'd still need that 2-3% pullback near 1200-1205 for wave 4 from 1040. That drop should only take 1-2 days, entice some bears, shake off some bulls and then rally to another high into next week. If SPX falls back to 1200ish, the Dow should test its 20dSMA (while SPX 20dSMA is down at 1190ish), and I'd expect a bounce. But, if SPX continues down to test its 20dSMA at 1190ish, the Dow would be about 1% below its 20dSMA opening the door to more bearish possibilities or at least a couple more days of consolidation.
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Active SPX Signal: None.
Daily trend: Up with support at 1183.56.
Hourly trend: Up with support at 1214.05. Hourly stoch nearly reset below 50 which would create another potential buy signal assuming SPX drops a little further and 1214 support holds.


I created 1-year daily charts for 2005 through 2010 and circled all the occasions when 2 consecutive or even 2 of 3 days closed above or right at the upper Bollinger Band (20,2). It typically happens a few times per year, and today marked the 3rd day in a row (and nearly the 4th) clearly above the upper BB20, a much rarer occurrence. The last 2 cases on 2010 led to 1.5-2% pullbacks followed by higher highs less than 1-2% above within 1 and 3 weeks of the last BB20 eclipse. The 5 cases in 2009 (4 of which occurred during the strong bull rally) all led to about 50 pt pullbacks starting within 0-7 days except the January 2009 occurrence which led to a near 300-pt drop in 2 months. The 2 occurrences in 2008 led to 15%+ drops in 6+ weeks starting within 0-2 days. The 8 occurrences on my 2007 chart are mostly bullish with 6 of them only pulling back 1-3%, 1 of them hardly pulling back at all and 1 more pulling back 12% in a month. All 5 of the 2006 cases were fairly bullish with only 1 barely exceeding a 3% pullback. 2 of the 5 cases in 2005 didn't noticably pull back while the other 3 cases pulled back 3-8% in about a month each.

So, overall the current upper BB20 situation leans heavily towards a 2-3% +/- pullback starting within days with very limited upside, but the projections for the subsequent month is mixed leaning bullish. I looked at a lot of indicators that coincided with the previous BB20 cases, and 2 things stood out to me. When it occurred without RSI14 divergence, the pullbacks were likely to be very small and the continuations much higher. And, when it occurred with VIX trending under its 20dSMA, the pullbacks tended to be smaller as well. Today, VIX is under its 20dSMA having held its low by pennies, and daily RSI14 narrowly surpassed the April high making no divergence with price. That means today's conditions favor the bullish outcome. However, a similar outcome occurred just over a week before the April top leading to a quick 2.5% pullback and then 6 days to a slight new high.

Given my discretionary spending analysis, I think a pullback of the 10% variety (and possibly much bigger) is coming starting in November. However, this BB20 analysis suggests we'll first get a small 2-3% pullback followed by a new high over the next week or so. There are key Fibs at 1228-1231 so that would seem likely. EW suggests we still need a 4-5 from SPX 1040 which fits well. Some people suggest we also need a larger 4-5 from 1011. That might sync up if SPX managed to reach 1240ish on the first 4-5 and then pullback in a larger wave 4 to 1140ish OR if SPX made a parabolic move to 1250-1300 in the next 2-3 weeks and then collapsed back 100+ pts in the following few weeks. However, if USD has bottomed as looks probable based on my USD analysis last night combined with no re-reversal today, then the latter parabolic SPX scenario is almost certainly dead and a huge wave 4 pullback like 1240-->1140 seems too big and disproportionate so I still like my ABCXABC count from 667 with the last C likely needing a small 4-5 to 1228+ with RSI divergence in the next week or so.

Here are all the BB20 charts.