Thursday, December 3, 2009

SPX Created Five Gaps Since 11/6 - The Chaos Indicator.

Count the gap-open on the S&P500 recently since November 6th. Notice how the chart (OHLC bar style) looks like a very unstable thinly-traded security. We count five gap-opens since the close on November 6th. If we fill that gap (which hasn't happened yet) it would put the SPX very close to the lower bound of the Bollinger-band.

Is there a technical formula that measures "chaos"? That's what the chart looks like since early November. If the chaos factor were high, would it be a bearish or bullish indicator? Intuition suggests bearish since it indicates indecisiveness, and selling and holding cash when you aren't sure what to do is easier than buying and holding risk when you have no firm conviction.

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