Technician
Short

8 Reasons to Short the Stock Market (Part Three) #stocks

1230 5 47
8) Volatility Studies on the TLT/SPX Ratio confirm danger is near

Bollinger Bands:
Definition: I have added a 52-week bollinger bands , which is a measure of market volatility, the band widen when the underlying instrument is volatile, while it narrows or squeeze when the underlying instrument gets in-volatile. Traders use bollinger bands in different way, one of them is to monitor when the bands squeeze which hints a breakout is imminent, as such periods of in-volatility usually followed by strong moves.

BB on TLT/SPX: The band has been narrowing for a while following the 2008-2009 crash, to a very narrow range within the past year or so, indicating the ratio is at a very in-volatile stance.

Average True Range(ATR):
The ATR is another indicator of volatility, without going into too much details about the construction of this indicator, in short it's constructed through a formula that compare the range of each period.

ATR on TLT/SPX: Its visually very clear on the chart, the indicator moves higher when major moves in the ratio occur, starting from the left, the ATR line was high but moving lower following the 2000 market crash, where it dropped below the pivotal zone(colored in YELLOW) to the GREEN zone. The green zone clearly indicates a low volatility environment. A break out from this green zone to the RED zone, signaled a pick up in volatility, and either a market crash or a hefty correction. as shown on chart. The ATR has almost broke into the red area.

Putting Both together:
Looking solely on volatility studies, what we got now is a bollinger band squeeze, and ATR breaking into the red zone in late January, since then, stocks has been making no noticeable progress moving in sideways consolidation manner. The ATR is currently attempting for another break into the red zone which is an alarming signal, hinting we are ready and possibly closer to a move to the downside..

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My best regards,
Technician
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idan88
a year ago
Interesting stuff. Thank you!
So do you think closing open longs on SPX500 soon is a good idea?
Reply
Not that I use Elliot Wave theory, I appreciate it and have fellow traders who proficiently trade using it and based on that plus my on reviews, I suspect that a much deeper correction on the indices and the alike will be present in the later months of this year.

Will shall just have to wait and see? Good analysis by the way!
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Crit_Nasty
a year ago
SPX500 -- My Predicted, "Market Meltdown of 2016-2017"
Scary...
Reply
aalapsharma Crit_Nasty
a year ago
Crashing in 5-6 months?
Reply
wylongmhy
a year ago
Teacher, what do you draw? Can the whole point of Chinese.In addition, the link to you, please give me a lot of advice, thank you! https://www.tradingview.com/u/wylongmhy/#published-charts
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