mean-reversion (1)

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A Rare Sell Signal Confirmed In S&P500

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One of my favorite scans for a trade in the stock market is looking for setups with a tight Bollinger band squeeze with divergence (just ask our member Donald) but this end of month was different.  I was looking for confirmation of something more....ominous.

In case you missed it, the S&P500 exhibited a rare (and solid) piercing of the upper monthly Bollinger band in May which was met with immediate selling pressure.  To many technicians, merely piercing the upper band raises a warning flag as quite often it indicates the market will revert to the mean, or at a minimum the nearest support. 

The Bollinger band mantra goes something like this:

  • Buy when the price falls below the lower Bollinger band
  • Sell when the price pierces outside the upper Bollinger band

and boy......did they sell! 

I call it "rare" because normally price is contained within the Bollinger band and actually piercing the upper band with such severity only occurs every 5-10 years or more.  Of course a nays

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