Saturday, December 3, 2016
Joined Nov 11, 2007
1,458 Blog Posts

5 $SPX Closes Above the Upper Bollinger Band: What Happens 50 Days Later?

Today, despite closing slightly lower, the S&P 500 closed for the 5th day above its upper Bollinger Band (50,2). I have written previously how closes above the the upper band are typically bullish and may signal an abnormal market. This evening we’ll examine what happens after 5 consecutive closes above upper Bollinger Band.

The Rules:

  • Buy $SPX at the close after it has made X consecutive closes above its upper Bollinger Band
  • Sell Y days later
  • $SPX history starts in 1928
  • No commissions or slippage included

The Results:

5 Closes Abv BB

The results are more bullish than I expected, and they improve as the number of closes above the upper band increases.

  • This setup was not nearly as rare as I had imagined.
  • There were 126 occurrences of 5 closes above the upper band with 110 trades held the full 50 days.
  • After 5 closes above the upper band, $SPX has closed higher 50 days later 67.27% of the time.
  • Buy-n-Hold results are calculated by cutting $SPX history into 50 day segments and then averaging the segments.

The number of samples should be sufficient to lend reliability to the results, but I am honestly a little disappointed because I suspected the results would be either extremely bullish or extremely bearish. I was looking for some drama and didn’t find it. Instead, this study just presents another reason to lean bullish.

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  1. Djmarcus

    Interesting. Thanks wood

  2. slim

    Wood, do these results look different if you only include data since 2010?

    • Woodshedder

      slim, there were only 6 instances of 5 closes above the upper band since 2000.

      I don’t know how different they will look, but I will look at it at some point. If the results are interesting, I’ll post about it.

  3. cheesetrader

    Wood – when you run these studies, do you look for areas of max pos/negative effect? IOW, instead of just looking at 50 days, do you look for where you get say 80% up and find that you see this about 15 days out? Does this even make sense?

    • Woodshedder

      I don’t really, but I could. It would be easy to discern the max pos/negative effect just looking at the posted graph. For example, around 10 and 35 days out looks good. I would bet within a day or so of those days would be a win % of more than 70%. Does that make sense?

  4. nyjag

    Nice work, thanks. I wonder if there is a more definitive trend based on the month or season of the trigger.

    • Woodshedder

      Hmmm. I think I get what you are saying. I do think it is odd to see this setup, which is bullish, in the middle of “Sell in May” seasonality.