Bollinger band width and %B on weekly charts

I may have found an interesting pattern on weekly charts using Bollinger bands width and %B (%B is a percentage that expresses the position of the price within the range described by the two bands, where 0% is the lower band and 100% is the higher band).

Multi-month drops in price coincident with a widening band, followed by a "topping" phase in the band width coincident with a rise in %B, indicate times when it may be advantageous to enter a long position.

I think it makes sense because that pattern describes an intermediate-term oversold position. 

The bands become wider when the price drops suddenly (they also widen when the price climbs, but that's another case). When an extreme oversold condition is reached, %B displays a spike low.  Afterwards, it starts climbing off the low, while the bands narrow again, as in a return to "normality". These are times when it's good to add long positions.  Of course, it has to be in the context of an underlying (1-2 years) uptrend.

I checked a few index funds and GLD and it seems to hold in most cases. I didn't verify it on any individual stock.

%5, 7%, 16% drop in SPX - Update

In a previous post I described a possible pattern of increasing drops in the S&P 500, where drops of ~5% seem to precede drops of ~7%, which in turn precede further drops of ~16%.

-5% -> rally -> -7% -> rally -> -16%

The drop we just witnessed measured 8.1%, and it followed a drop of about 3% (not exactly 5%, I know).  If this pattern holds up, we should see a rally of one or maybe a few weeks, taking us to the ~1,350 level, and then a further drop of around 16%, which should take us to ~1150.

4 BIG RISKS FOR THE MARKET

http://pragcap.com/4-big-risks-for-the-market

Great post. I especially like the practical section at the end. I had
similar thoughts about gold, and I was also expecting a bounce of the
$SPX to ~1350.

Seems like we're going have a volatile market in the summer. Good for the VIX...

Alessandro

Spikes in ratio of VXZ to VXX seem to predict VXX moves

Here's a strange and maybe interesting pattern in the ratio of VXZ to VXX. Spike tops and bottoms seem to predict rallies and drops in VXX.  The thing about VXX is that drops tend to be gradual, and rallies very abrupt - it is based on the index of fear, after all, so it goes up fast and is dispelled over time when people realize that the sky is not falling.

If this holds, the next spike top in the ratio should provide a buying signal for VXX. Reversals have come every 10-15 days lately, so maybe it could happen sometimes next week.

5%,7%,16% corrections in SPX

Not sure what of make of this observation on SPX.  There has been a strange pattern of corrections of 5%, 7% and 16% in the last 3 years.  Now we have just seen a 7% drop from the most recent high of 1408.  Will it continue to drop to 1180 for another one of these 16% drops, or will this be another of those 7% drops and it will bounce up from here?