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Joined: 28 Dec 2005 Posts: 11979
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Posted: Sun Dec 10, 2006 9:24 am Post subject: SPX Monthly Bollinger Bands |
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Below is an SPX monthly chart with Bollinger Bands. Most of the time, the upper monthly Bollinger Band has been a reliable SPX resistance level. The last time SPX traded largely above the upper Bollinger Band for three consecutive months was in 1997 (and fell in the fourth month to almost the third month low). Also, there have been months prior to 1997 where SPX traded above the upper Bollinger Band for several months in a row.
The red line (and left scale) is the U.S. dollar index, which has always held around 80. The depreciated dollar indicates there are more dollars in the foreign exchange market compared to major foreign currencies. Many foreign central banks have been shifting from buying dollars to buying other currencies and gold. Consequently, U.S. monetary policy may be less restrictive than the bond market's low yields suggest. A lower U.S. dollar index will make it less likely the U.S. central bank will begin an easing cycle, and the larger quantity of dollars helps explain the U.S. bond and stock market rallies. However, a precipitous fall in the dollar will be inflationary for the U.S. economy.
Above the price chart is the monthly VIX, which has traded near historically low levels recently (in 1997, when SPX traded above its monthly upper Bollinger Band for three consecutive months, VIX traded around 20). A low volatility market is an unforgiving trading market. Below the price chart is the monthly NYSI, which is overbought, and suggests with other intermediate-term technical indicators that SPX will be much lower sometime in the next quarter.
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