When you look at an old fashion pendulum clock you know that it swings from
one extreme to the next. Each time it reaches an extreme it moves back down
to normality (the bottom center of the swing) and then overshoots it until
the next extreme.
The pendulum extremes are like being above or below the upper and lower Bollinger
Band levels. The Center line in middle of a Bollinger Band is like the normality
level over time.
So, like a pendulum extreme, when a tick falls well below a lower Bollinger
Band like yesterday, it is an extreme level where it comes under pressure
to move back into the Bollinger Band area. Sometimes, it takes a couple of
ticks below the lower Bollinger Band to find its true extreme level, but the
fear index (the VIX) often gives you a clue about when the extreme has been
reached.
In any case, this morning's gap up opening was a normal reaction to an overextended
tick on the lower Bollinger Band. At 10:07, the $NYBR (New York Stock Exchange
Breadth) was at 2131 ... a strong positive level. If it falls below 700 today,
it could get into trouble ... but for now, it is nice and strong.
Marty Chenard is an Advanced Stock Market Technical Analyst that has developed
his own proprietary analytical tools and stock market models. As a result,
he was out of the market two weeks before the 1987 Crash in the most recent
Bear Market he faxed his Members in March 2000 telling them all to SELL. He
is an advanced technical analyst and not an investment advisor, nor a securities
broker.
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