Corey Rosenbloom: As traders, we’re constantly looking for changes in the trading environment especially when things that are less common or rare become more common.
This is the situation we’ve been seeing with respect to the persistent rally in the market and how we study (and adapt to) what has changed.
Let’s take a quick look at the S&P 500 (INDEXSP:.INX) daily chart and compare “what’s new” with recent rallies and Bollinger Band behavior:
I’ve been highlighting this concept to members of the Daily Reports – it’s the tendency for the market to “become overbought and stay overbought.”
It’s a recent phenomenon and it’s one that we need to update into our trading plans. We can’t use the same strategies (or assumptions) of the past to the current market which has changed.
It’s relatively rare – historically – to see a market break and extend multiple days into the upper Bollinger Band (two standard deviations away from the 20 day average).
However, as we can see in the chart above, this ‘rare’ behavior is now common in the market.