While there is still time in today's session, and it looks to me like price could rally this afternoon, I wanted to get some info out because of the situation.
If prices close below the lower bollinger band today it will be 3 in a row. This is a bullish set up. Other factors currently in play, low stochastics, low MFI reading, multiple closes below the open in a row all increase the bullishness on back tests.
About half of the past instances where prices closed 3 days in a row below the lower bollinger band, it went on to close below it for the forth day in row the following day. 4 closes below the lower band in a row is a massively bullish set up on the back test. And over the following 3 days the MAX gain is nearly 4 times as big as the MAX loss in SPY.
So the point here is that IF we close below the lower band again today in SPY, there is a nice set up based on past data. And even it goes on another day or so, the snap backs in the past have been sharp, and may still end up being a profitable end result.
The play would be to buy the ATM SPY call option which expires next Friday. There are a range of limit order with high probability of success and strong expected value. 80-130% limit orders are the right range.
For specifically 3 closes below the band in a row, the peak closing return on SPY has been 5 days later base on the past instances. The average was about 1.5% gain (including losers).
Pete
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There have been 27 other instances of specifically 3 closes in a row below the lower bollinger band (not more). And 16 of them made a lower low the next session. On average there was not really any significant closing gain until the 3rd day later after the signal was generated (3 closes in a row below band).
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