Bollinger Band creator is still bullish on the Dow and S&P 500

As 2019 ends, the stock market is pushing towards all-time highs on a weekly basis. Even though both the S&P 500 and Dow Jones Industrial Average pushing outside of the Bollinger Band indicators, its creator says that people shouldn’t be getting out of the market.

John Bollinger, creator of the Bollinger Bands answered a question today about someone wanting to get back into the market while the Dow and S&P 500 are at all-time highs.

“The much more important questions are:

Why are you out of the market?

How did you get out of the market?

Etc…” – John Bollinger

Bollinger’s own indicator is meant to give buy and sell signals depending on where prices lies within context of its bands. For instance, if price is rising above the bands, it might be over-extended and a good time to sell. If price hits the bottom of the band in an uptrend, it might be a good time to buy. When Bollinger Bands expand, it is a sign of high volatility and price will likely continue to move in the direction of the trend that opened the bands.

Using Bollinger Bands to analyze the stock market right now will result in two conclusions: stocks look overextended, but also volatile. Hisorically, when the bands have extended like from 1955 to 1965, and 1990 to 2000, there has ben sustained growth until they started to close up. Right now, the bands are extending which could mean there will be a bullish market in years to come.

Yearly Candles on Dow with Bollinger Bands
Yearly candles on Dow Jones Index with Bollinger Bands indicator

At the same time, the market could be due for a correction to bring itself back inside the upper bands, or when next year’s candle opens, it will increase the height of the top band, bringing the new candle back inside.

Regardless, Bollinger is an expert and isn’t bearish even as the charts look to be overextended. Remember to use caution and not to take these indicators at face values as there are many other factors that impact the market, and it’s easy to forget to take time frames into consideration when investing. To learn what a bullish continuation in the stock market might mean for Bitcoin next decade, check out the piece we wrote on how new decades affect gold, stocks and (maybe) bitcoin.