I covered some more of my GM short inside 12631 (entry above $36) today. And one main reason I did so is because the stock is now punching through its lower daily chart Bollinger Band.
Bollinger Bands are useful technical indicators for measuring, among other occurrences, relative tops and bottoms on a chart for a given timeframe. Here, we are looking at the daily chart.
Over this weekend, you will likely hear many technicians discussing how many indices and stocks are probing or punching down through their lower daily chart Bollinger Bands as a sign of oversold conditions in the market. There is nothing wrong with that analysis, on its face.
But it is important to remember that a major decline will begin with oversold conditions remaining stubbornly so, essentially ignoring those signals which have previously coincided with a tradable low, or a run to new highs, in 2013. Those lower Bollinger Bands will suddenly become traps to lure in eager dip-buyers.
Frankly, I do not know if that is going to happen this time, or if we will see yet another rally to new highs, which is why I scaled some more General Motors short to lock in some gains. But you can be sure I am watching to see how many traders over the weekend are pointing to this technical development as a sign to add to longs.
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