Nope, but if you’ve spent anytime reading this blog, the answer was not a surprise.
I have written a fair amount about how I use a SPY close above the upper Bollinger Band of 50,2 bands to signal an abnormally over-bought market. One of my readers wondered what happens after a close above a standard 20,2 upper Bollinger Band.
Rules:
Buy SPY at the close if it closes above the upper Bollinger Band (standard settings of 20 day mean and 2 standard deviation bands).
Sell the position at the close X days later.
No commissions or slippage. Tested over all SPY history.
The blue line shows the results of the setup. They are definitely not bearish, but they are not nearly as bullish as a close above the 50,2 upper band.
The green line shows the results of buying SPY at inception and holding it in 50 day increments. This is not a perfect comparison as the start date will have a great affect on performance, but it does give us something to which we can compare the setup results.
The bottom line is that over the short-term, markets have tended to mean-revert. Over longer time frames, such as 50 trading days, markets will exhibit more trending behavior. If we start with a market that is already strong enough to close 2 standard deviations above the mean, it should not be surprising that the strength will more often than not continue over the intermediate term.
SPY last closed above the upper Bollinger Band (20,2) on 2.8.11
