FAS Squeeze

FAS continues it sideways move, each day decreasing in volatility, and each day's movement pretty well contained within the previous day. Volume was up, reaching average.

FAZ shows sideways movement, though volume is and has been above average.




As discussed last night, the length of the Bollinger bands is reduced from the normal 20-days to a quicker 13-days. The shorter length shows FAS entering a squeeze, Bollinger's term for a period of abnormally reduced volatility. The lower portion of the graph plots the Bollinger-band width, showing it diminished to a new low level. It is, in fact, as low as it has ever been during the entire history of FAS.

This graph shows both the 20-day (heavy blue) and 13-day (heavy light green) Bollinger bands to allow a comparison. The 20-day Bollingers show a steady narrowing, while the 13-day Bollinger shows an accelerated narrowing today. Notice, too, the 50-day moving average (heavy dark green) is progressing each day with a virtually identical slope and position as the lower trendline (black line) coming from the March 6th low. Even with continued sideways movement, price, 50-day moving average, and trendline should all meet no later than June 3.

The importance of the 50-day moving average: Many large investors, e.g., mutual funds, take on positions when price touches the 50-day moving average. A large accumulator of shares often starts another move upward.

The importance of the trendline: Traders take a position when price touches a trendline.

The importance of the Bollinger squeeze: It is a measure of the calm before the storm. Minimized volatility indicates a lack of buyers and sellers, so should one or the other come in, the price should dramatically start a new movement. It is not uncommon for the move out of a squeeze to be in the wrong direction, which quickly reverses and roars off in the other direction. John Bollinger calls this a head fake.

The combination of 50-day moving average test, the Bollinger squeeze, and the uptrend line, promises all the more potential for a dramatic move.

The correct play is to establish a position on breakout. If it reverses, cover quickly and reverse one's position. In this case, reversing one's position would mean moving from FAS to FAZ, or FAZ to FAS, as appropriate. FAS is the probable upward mover.

For the moment, we wait... A smug smile is appropriate.