SPY closing beneath the lower Bollinger Band creates a bullish setup for the next 1-3 days.
Today SPY closed beneath the lower Bollinger Band, 2 standard deviations below a 50 period mean (50,2). See chart below. The chart looks nasty, but testing this setup shows how we can be fooled by how things look on a chart.
- Buy SPY at close when it closes beneath the lower Bollinger Band (50,2).
- Sell at the close X days later.
- No commissions or slippage included.
- All SPY history used.
Summary of Results:
This study has a decent sample size with 102 occurrences of this setup. The next day edge is very strong but any gains from an immediate bounce have been worn away after a week and a half (8 days).
The results suggest that there is a good chance that the markets will see a close lower than today’s close sometime in the next month. However, over the intermediate term, this setup suggests the possibility of gains of 2% or more above today’s close.