Triple Measured Moves in SPY Show Market Character

11/19/2009 12:01 am EST


Corey Rosenbloom

Founder and President, Afraid to Trade

Something interesting might be happening in the SPY chart, particularly with regard to the three most recent swings up 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 to Enlarge

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.

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.

By Corey Rosenbloom of
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