Dow Jones-Bollinger Bands Study: A Sign of Exhaustion?

By See It Market Mar 12, 2013 10:25 am

Here, an attempt to determine if consecutive days above the top Bollinger band is an exhaustive signal for the DJIA, and assess how the market has reacted to this phenomenon.

While everyone continues to pound the table saying that “this market is overbought” or “the market is topping,” stocks continue to do the exact opposite. And further, the stock market continues to be strong despite being up over 8% YTD. Within this context, I began digging into various strength and exhaustion indicators and realized that the Dow Jones Industrial Average (INDEXDJX:.DJI) has closed above its top Bollinger Band four days in a row.

This prompted me to do a Bollinger Band study to determine if consecutive days above the top Bollinger band is an exhaustive signal for the Dow Jones, and also to assess how the market tended to react to this phenomenon.

I did the study going all the way back to 1994, looking at the consecutive days the Dow Jones Industrial Average closed above its top Bollinger Bands (using four days in a row as my factor). This has only happened a total of 10 times, including Friday, March 8, 2013. See the results and chart below. Of the nine instances that we have data for, the results one week later, were fairly mixed. However, the results one month later had the market down six out of nine times. Please feel free to provide thoughts/feedback in comments below. Thanks!

DJIA Four Consecutive Days Above Top Bollinger Band Study – Results