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Bollinger Bands (BBs) can be used to assess if an advance or decline has strength: by seeing if price is "riding" either the upper or lower band, respectively, and seeing if these bands are expanding at the same time. Another aspect to watch is the tightening of these bands, aka the "squeeze", which foretells a larger move is coming to our markets soon.
With the BREXIT vs BREMAIN vote due on Thursday, and knowing how jittery the market has been over the past two weeks, let's assess how the Bollinger Bands look currently on the S&P 500 chart below.
What is instantly obvious are the tightening BBs: a big move is coming to the markets. Which way? It's a bit hard to tell, even using other techniques, but the fact that price is below it's 20d SMA is not encouraging. So, we'll just play it by the numbers:
With so much uncertainty and the possibility of two large diametrically-opposed moves, we suggest to stay in cash until the smoke clears after the UK's vote. In other terms, we'd rather say “Man I wish I were in” than “Man I wish I was out”.
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