Triple Measured Moves in SPY Show Market Character

Nov 17, 2009: 12:50 PM CST

Something interesting might be happening in the SPY chart, particularly with regard to the three most recent swing-ups in price – they have all been exactly equal in price moves (so far).

Let’s look at these three symmetrical swings – called “Measured Moves,” – and note the current level and how an exceeding of this level could hint at a shift in market “Character.”


(Click for Full-Size Image)

While this post is more of a study in recent history, it’s important to note the patterns that have developed over the last few months to see if these patterns or tendencies – also called “Market Character” – will repeat into the future.

If not, then we’ll know that the character is changing.

Observation 1:

Swing Lows have occurred at the very start of a new month, and then a strong rally has occurred, taking the S&P 500 to fresh 2009 highs each time.

Observation 2:

Swing Highs have occurred roughly in the middle of the month – near “Options Expiration” – and a sharp pullback – almost of a “Mirror Image” has occurred.

Observation 3:

On each swing up, price has rallied $8.41 in the SPY ETF (roughly 84 points in the S&P 500 Index)

Extrapolation into the Future:

If this pattern holds true once again, then we would expect to see the top of this swing soon and then an orderly pullback to take price back to the $105.00 level.

Caveat:

If price continues this week to make a new swing high and exceed the $8.50 swing in price, then that will be a hint that “Market Character” is changing and that we could no longer rely on these short-term observations to hold true into the future.

I took a look at similar logic in my October 21 post “Recent Measured Move Retracements in the SPY.

Let’s keep a close watch if the SPY makes a new high this week, and if not, then we could be looking directly at the “Pathway Ahead” for prices… just look to the prior three months.

Corey Rosenbloom, CMT
Afraid to Trade.com

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10 Comments

10 Responses to “Triple Measured Moves in SPY Show Market Character”

  1. terlyn Says:

    This is a similar analysis to the New Moon/Full Moon, which has been talked about, eg, by the Elliott Wave International. Options expiration seems like an important point to note. The New Moon was yesterday at 2:00pm, the high of the day.

  2. Corey Rosenbloom, CMT Says:

    Hey Terry,

    I read that in the issue and found that interesting. I'm not one that does much at all with cycles, but it's interesting to observe.

    The OpEx week (Friday) will likely dominate the structure this week – higher volume and more volatility.

  3. terlyn Says:

    Right. I thought the lunar cycle thing was a bit far out, but then I researched it and found that others noticed a statistically significant increase at the New Moon, but not much difference.

  4. graspthemarket Says:

    I haven't really reached on any reliable conclusion about cycles either. To me they always appear to be something recognizable in hindsight. I did, however, discuss a little about the VIX over the past week in a brief article at the bottom of this page: http://www.graspthemarket.com/articles/20091115…. Overall, I guess I would’ve expected something to move with the VIX over the past week or so, but we are just stuck at about 23—inspite of a 550 point rally. I don’t know what to make of this divergence…especially, because I would’ve expected the VIX to decline with the rally. Any thoughts?

  5. Red Dragon Leo Says:

    Good observation Corey. I totally missed it.

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  10. freak79 Says:

    Well this is very interesting indeed.Would love to read a little more of this. Great post. Thanks for the heads-up?This blog was very informative and knowledgeable

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