Trading Nation

Chart pioneer sees more gains ahead for stocks


John Bollinger on the market’s next move
Julian Emanuel: Volatility spike ahead
The fearless market?

Renowned technician John Bollinger, creator of Bollinger Bands, believes that the charts are pointing to even more highs for stocks, meaning that the so-called Trump rally isn't over yet.

Friday on CNBC's "Trading Nation," Bollinger commented that while positive expectations surrounding President Donald Trump's proposed policies have driven the market so far, the technicals behind the market are just as strong.

The technician is referring to two charts in particular, with the first being the NYSE composite advance-decline line. The indicator, according to Bollinger, is "the number of advancing stocks each day [over] the number of declining stocks," which has pulled back recently.

The second features Bollinger's own indicator, Bollinger Bands, which jointly measure recent prices and volatility in order to derive potential levels of support and resistance. While the has been doing a "walk up the upper band," which indicates that the market may be overbought, the fact that the advance-decline line has moved alongside the S&P leads Bollinger to believe that there's room yet for the market to advance.

"You can see that the S&P 500 has been marching up the upper band, that's that low-volatility advance that you were talking about, and the advance-decline line has been confirming every single tick of the S&P," said Bollinger. "So until we see some divergences there, I don't think there are a lot of reasons to be too worried about this market."

But should those divergences occur, they would be red flags for the bulls. The first of the divergences, according to Bollinger, would be if "changes in leadership" did not occur in the market. The technician believes that small-cap stocks, in particular, would be an indicator of such a leadership change.

"Small-cap stocks did really well in the post-election rally, so we'd look for them to start doing well again," he said. "If that didn't happen, then that would be a reason to worry."

Otherwise, Bollinger believes that two other red flags could occur in the market, including a "buildup" of stocks suddenly hitting new yearly lows. The final indicator, according to the technician, would be if the advance-decline line started to "roll over" and head down, an indication that more stocks were declining rather than climbing on a daily basis.

The S&P 500 is currently up almost 6 percent year to date.