Bollinger Bands

I have been saying for weeks that this market is overdone. Now, if you know how Bollinger Bands work, the longer they are narrow, the bigger chance for a HUGE move.

Here's what Larry Levin wrote:

Today began the S&P500 futures roll over. This is when traders switch from June (the current contract) to the next contract month, which is September. Stock futures trade quarterly. Please switch all of your charts this evening for tomorrow's trade.

Roll over is normally an unfriendly trading environment because traders gradually switch from June to September. With volume spread between two contracts, we normally see small choppy ranges. Today, however, it was as if there was no roll over at all: the market fell apart (early).

What made today different? My guess is that the market internals simply called for a big move today. We were ready for it - roll over or not. Over the last several days our Notes from the Pit noted the extreme fall off of NYSE volume. During this decrease of volume, however, prices continued to rise and the value area shrank. Moreover, yesterday's range was extremely small.

Put all of that together and we strongly believed the odds favored a very large move today and should have been down.

What happens next? We'll do our best to inform you in Notes from the Pit and the virtual trading room but something odd is brewing for sure. From today's Notes: "Although today was a great breakout trend day, the market came back strong to close almost unchanged again. This makes 7 out of the last 8 consecutive days almost unchanged - amazing. There must be a LARGER breakout soon. Today's internals are weak, but with the strong close the overall bull trend is intact. Be careful."

Said another way, the market has been churning in about a 30-point range for almost two trading weeks and that just can't last much longer.