Thu 28 Feb 2008
Recently Under Armour triggered a watch when it dipped below the bottom bollinger bands calculated using a 19 day period. This indicator is an excellent measure of volatility of a stock, and this particular instance shows that Under Armour may be oversold at the moment.
Digging up as much information as can be found, we noticed that the Under Armour at Yahoo Finance chart showed different high and low values than the Under Armour at StockCharts.com chart. Yahoo was claiming that the bound was 39.879 to 44.2736 and StockCharts had calculated 37.68 to 46.47. The discrepancy on the lower end is almost 6% of the closing price.
We can't except this kind of difference, and immediately wanted to know which popular free charting solution is more 'correct' so we opened the hood of our monitoring system and had a look at what it thought the bounds were. Our system showed that the Bollinger Bands for UA as of the close on the 28th of February were: 32.76 and 41.54.
The difference, we believe, is in how the period for each is defined. Our system uses a 19 trading day sample, which includes 19 samples going back to February 1st. If instead you calculated the bounds based on all trading days within the last 19 days you would instead only have 13 samples of data which misses the swing from below 40 to almost 45 dollars.
The approach taken by StockCharts and Yahoo are not incorrect, but you need to be aware of the difference. This example goes to show that unless you are painfully aware of how the tools you are using work, you can't rely to heavily on the signals they produce