SP500 Continues to Ride Sigma Bands Higher

Feb 25, 2011: 8:11 PM CST

Earlier, I posted that the S&P 500 was riding the first and second Sigma (standard deviation) bands all the way up, and that concept has continued during the recent rally – until this week’s snap decline.

Let’s take a look at the updated S&P 500 Sigma Band chart and see where the current boundaries reside:

Click for full-size image.

For reference, Sigma simply refers to Standard Deviation from the 20 day mean (average), and we’re looking at the plus and minus four sigma bands from the 20 day average.

To put it in simple terms, the famous Bollinger Band indicator shows only the second standard deviations above and below the mean.

What’s interesting from the first post I did on October 16th – and today’s update – is that the S&P 500 has had a tendency to “ride” or travel between the first and second standard deviations on the daily chart.

Take a close look at the tight-range rally to see it for yourself.

Also, I showed in October how Gold also ‘rode’ the Sigma Bands.

Now that volatility has picked up, the S&P 500 broke down to the negative 1 Sigma Level and has recently bounced up off it.

The bounce off the 1,300 level was met with clean and clear positive internal divergences, as I showed Thursday.  It’s thus no surprise the price rallied Friday.

Anyway, I think this is an interesting indicator worth further study.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!


2 Responses to “SP500 Continues to Ride Sigma Bands Higher”

  1. marketsniper Says:

    Outstanding, Corey. going through your book now. Once past the basic stuff (which is great for the newer trader), you have some outstanding work in there! Highly recommend for you traders who still do not really understand price and how it is created and insist on “trading” without a method or a plan!

  2. Mid-March SP500 and Dow Jones Sigma Band Update | Afraid to Trade.com Blog Says:

    […] “SP500 Continues to Ride Sigma Bands Higher” February 2011 […]