Recent Measured Move Retracements in SPY Oct 21

Oct 21, 2009: 10:51 AM CST

With the market continuing its relentless rise off the early October lows, let’s take a look at the four recent “retracements” and note their symmetry in both form and movement… or in other words, let’s compare and note the almost identical similarities in the four recent ‘pullbacks’ against the recent up-current in the S&P 500 and SPY.


(Click for full-size image)

Off the October 2nd lows of $102 (remember then?), price has increased $8.00 (80 S&P 500 points after a rise off 1,020) to the recent $110 (1,100 in the Index) highs.

It has done so with only four meaningful retracements, all of which are shown above.  The blue lines (trendline tool in TradeStation)  highlights the similarities of all pullbacks, both in shape and size.

For reference, here are the following estimated price and percentage retracements as recorded from high to low:

October 6:  $1.39 (1.31%)
October 13:  $1.32 (1.22%)
October 16:  $1.43 (1.30%)
October 20:  $1.43 (1.30%)

Why is knowing this information important?

First, it clues us in to the current “character” of the market in terms of immediately repeating history, which gives us a reason to look for possible support on any future pullback.

Second, in the event that price retraces deeper than $1.50 on any one swing down, it will tell us that the current character of the market is changing, which could clue us in that we would be looking  for a reversal in trend than one of continuation.

When you pick up on “character shifts” or ‘behavioral’ changes in markets or stocks, then you can sometimes be ahead of the crowd who have become acclimated to the patterns and do not realize that the patterns have changed.

On a separate note, one can also envision an “arc” formation in price by visually connecting the lower and upper price boundaries with two arcs in the same manner you would a trendline.  A break up or down from those two ‘arc’ trendlines (or ‘curved’ trendlines) would be a telling signal of a possible change in current structure/character.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

18 Comments

18 Responses to “Recent Measured Move Retracements in SPY Oct 21”

  1. terlyn Says:

    Corey, this is great information. As to the ARC, I have been noticing this and worrying about it. The first I heard about the danger of an arc was when I read one of the Market Wizards who worked for George Soros at one point. Soros told him that when the price formed an arc, it would plunge. I was worried about this formation.

    I'm trying to decipher today's structure after last night's Idealized Trade. I was thinking it was not the first idea of the corrective 4th wave giving rise to a 5th wave impulse lower, and there might be new impulse fractal higher, but I don't see that either.

  2. Corey Rosenbloom, CMT Says:

    Thanks Terry,

    You make a good point I'd forgotten about – I think we all have different names for the “arc” formation – I call it a “Rounded Reversal,” others call it a “Saucer” or “Scallop” or just 'arc.' It all means the same – not necessarily that we'll get a collapse, but that we're seeing a gentle transfer from demand/buyers to supply/sellers without much volatility. Price value is changing within accepted boundaries of “expensive” and “cheap” which helps form the arc.

    It turns on the move yesterday was just a ZigZag “ABC” as mentioned as the alternate possibility – that is was just a big Bear Flag.

    I felt like the rally higher at the end of the day was more in line with a corrective 4th wave up which also resembled a smaller bear flag, and we did get some downside action in the futures market overnight which did make a new low (@ES) to finish out the 5th wave down, but it wasn't tradeable.

    So, the 'global' or full overnight session shows a 5-wave pattern down from the highs as expected, though the intraday charts are going to be counted as a 3-wave correction (eliminating the overnight action) which seems to make more sense – corrections unfold in 3 waves.

    I would attribute a good portion of the morning surge to short covering/short squeeze. Rough sell-off so far.

  3. Dan de Man Says:

    We've basically had sideways trading for the last week. Today looks like a good risk / reward for a short term swing short trade. 3/10/16 macd is a hairline from a bearish touch. Short on days end and put your stop on todays high. Good to go.

    What do you think Corey?

    Thanks in advance,
    Dan

  4. terlyn Says:

    As you were saying… 🙂

  5. Ken Says:

    Start of P3 on the SPY today?

  6. Corey Rosenbloom, CMT Says:

    The timing of this post and its implications are somewhat ironic.

    Just when I mention the market is making stable 'measured moves' down and to watch for any break of this character, the market plunges and falls $2.18 or 2% from the high, qualifying as an official “change of character” I warned to pay attention.

    The character has changed, and it looks like Terry (terlyn) was correct in her remembering that after an arc, we get crashes.

    Not primary 3, but at worst, start of primary wave 5 – but that's certainly open to interpretation and needs confirmation.

  7. Ken Says:

    Good point…while I am very new to market analysis (been watching closely about 1 year now) I have only recently started trading a few weeks ago – and I definitely have been having a tough time in the past few weeks. It seemed to me like there was an underlying change going on, and perhaps I was “fighting the tape” but I am waiting for a pretty big correction to this run-up. I definitely need to sharpen my game, however!

    A great EW site I visit in my daily blogroll (of course in addition to your's Corey) is Daneric's Elliot Waves at http://danericselliottwaves.blogspot.com/ – always great for EW perspective.

    As always, I appreciate the posts – keep up the great work

  8. Dan de Man Says:

    Volume spiked through the 10 day ema too!

  9. Bob Says:

    In looking at the chart, it appears price moved up in three distinct waves. The first wave concluded at a high of $106, the second $108, and the third wave appears to have formed an expanding triangle with a lower bound being at about $109.09. The retracement lows when connected do appear to take on a rounded reversal shape. Combined, these two patterns, rounded reversal and expanding triangle have bearish untones.

    Late afternoon; a break down in price, a violation of that lower bound of the triangle and a violation of the arc did in fact occur.

  10. Dan de Man Says:

    We've basically had sideways trading for the last week. Today looks like a good risk / reward for a short term swing short trade. 3/10/16 macd is a hairline from a bearish touch. Short on days end and put your stop on todays high. Good to go.

    What do you think Corey?

    Thanks in advance,
    Dan

  11. terlyn Says:

    As you were saying… 🙂

  12. Ken Says:

    Start of P3 on the SPY today?

  13. Corey Rosenbloom, CMT Says:

    The timing of this post and its implications are somewhat ironic.

    Just when I mention the market is making stable 'measured moves' down and to watch for any break of this character, the market plunges and falls $2.18 or 2% from the high, qualifying as an official “change of character” I warned to pay attention.

    The character has changed, and it looks like Terry (terlyn) was correct in her remembering that after an arc, we get crashes.

    Not primary 3, but at worst, start of primary wave 5 – but that's certainly open to interpretation and needs confirmation.

  14. Ken Says:

    Good point…while I am very new to market analysis (been watching closely about 1 year now) I have only recently started trading a few weeks ago – and I definitely have been having a tough time in the past few weeks. It seemed to me like there was an underlying change going on, and perhaps I was “fighting the tape” but I am waiting for a pretty big correction to this run-up. I definitely need to sharpen my game, however!

    A great EW site I visit in my daily blogroll (of course in addition to your's Corey) is Daneric's Elliot Waves at http://danericselliottwaves.blogspot.com/ – always great for EW perspective.

    As always, I appreciate the posts – keep up the great work

  15. Dan de Man Says:

    Volume spiked through the 10 day ema too!

  16. Bob Says:

    In looking at the chart, it appears price moved up in three distinct waves. The first wave concluded at a high of $106, the second $108, and the third wave appears to have formed an expanding triangle with a lower bound being at about $109.09. The retracement lows when connected do appear to take on a rounded reversal shape. Combined, these two patterns, rounded reversal and expanding triangle have bearish untones.

    Late afternoon; a break down in price, a violation of that lower bound of the triangle and a violation of the arc did in fact occur.

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