Current Standard Deviation Bands for NASDAQ and Dow Jones

Jun 20, 2010: 11:45 AM CST

I received a lot of positive responses and questions to my recent “Standard Deviation Bands for the S&P 500″ post, and I wanted to follow-up by posting the current standard deviation levels and bands for the NASDAQ and Dow Jones Index.

Without further delay, the NASDAQ Index:

The logic of this type of chart is to show volatility beyond what standard/typical Bollinger Bands reveal – Bollinger Bands only show 2 standard deviations from the mean or average (blue line).

These charts take the standard 20 day average used in the Bollinger Band standard deviation calculation and then show all the way to 4 standard deviations from the mean – up and down.

For the NASDAQ, the standard deviations are the following (currently):

4 SD:  2,434
3 SD:  2,386
2 SD:  2,338
1 SD:  2,290

Mean:  2,242

-1 SD:  2,194
-2 SD:  2,146
-3 SD:  2,098
-4 SD:  2,050

Thus, one standard deviation is currently 48 Index Points.

Finally, the Dow Jones Levels:

The Levels to watch in the Dow Jones are thus the following:

4 SD:  10,887
3 SD:  10,704
2 SD:  10,520
1 SD:  10,336

Mean:  10,153

-1 SD:  9,969
-2 SD:  9,785
-3 SD:  9,602
-4 SD:  9,418

One Standard Deviation from the mean is roughly 183 points.

You would use these like pivot points – where if the market is rallying sharply, then the lower pivots don’t come into play … only the upper ones.

Remember that price does not follow a normal distribution (bell curve) due to outliers and high volatility environments, so you can’t assume that “there is a 95% chance that price will return to the mean if we are two standard deviations from the mean.”

If you look at the May ‘crash,’ then price ejected over 6 standard deviations from its 11,000 mean in early May – crashing through all SD levels.  Such is the nature of a crash.

Despite that, price did bounce right back up to its mean – blue line – on May 13… before crashing again.  This time, however, price was in a volatile period so the standard deviation levels were larger.

These levels are helpful in assuming exactly how far we are from the mean, taking into account current/recent volatility.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

1 Comment

One Response to “Current Standard Deviation Bands for NASDAQ and Dow Jones”

  1. Dee Dee Says:

    Thank you–this is really interesting. I subscribe to BBands.com and John Bollinger recently added an overlay to the charts for indicators he calls “price magnets” which are not extended standard deviations, but I think work the same way. Unfortunately the price magnets can only be seen by subscribers to the site–they do not show on the free charts. There is a free 30 day trials if you want to give them a look–definitely a new way of looking at Bollinger Bands.