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Home » Blog » 2016 » 06 » Is this market setting a trap?
By Lawrence G. McMillan

Stock prices maintained a positive stance throughout yesterday’s session, once again producing new closing and intraday highs for this move.  Moreover, these are the highest prices since last July 2015.  Still, one has the feeling that the rally should be stronger, instead of essentially inching higher day by day.  Overnight, S&P futures are down  8 points, so today might be a down day.  There is support at 2090 and then 2040 below that.  

$SPX closed above the +3σ “modified Bollinger Band” (mBB) yesterday.  That alone is not a problem for the bullish case, since $SPX has closed above the 3σ Band many times since the February lows (most recently in mid-April).  The +4σ Band is at about 2130 and rising slowly.  If $SPX were to move above that Band, then a sell signal would set up.

S&P 500 Modified Bollinger Band

Since we know the market is nefarious and attempts to prove the majority wrong at almost all opportunities, the above facts lead me to consider this a possible scenario: $SPX makes new all-time highs, forcing shorts to cover and bringing in neutral money off the sidelines.  As it is doing this, it advances above the +4σ Band, setting up a sell signal.  Then it declines, after having “trapped” the majority into being bullish.  Just a thought...

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