S&P 500 is back in the Bollinger Bands

The S&P 500 is finally back to within a relatively tight set of bollinger bands. You can see that it was trading above the bands on the way up, and below the bands on the way down, and occasionally traded in the bands when it looked to change direction (Oct 2021, April 2022, & August 2022). It has been largely trading within bands since October 2022.

Key settings:
- 20 periods (weeks)
- 1 standard deviation
- Exponential moving average
- Close prices

There have been some weeks recently in 2023 where the market traded above Bollinger Bands as it tried to break out of the bear market pattern. That did not last and we are now trading closer to the middle of the bands as the market corrects. Why the correction this time? Interest rates rising as inflation did not cool as quickly as expected by the Federal Reserve Bank and the Markets. So, the fear of rising interest rates, and the sense that monetary and fiscal conditions will tighten pulls money out of the market.

In our words, we are calling this a RISK-OFF market because risk-free rates of return that you can lock in, risk free, right now, are rising to within 4% of the expected return that you hope to get by investing in risky assets. So, a bird in the hand is worth two in the…