How To Measure An Impending Move
Patterns rarely repeat exactly as before but they do recur with sufficient
frequency to draw inferences and even suggest the magnitude of an impending
move. The S&P 500 cash
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in head-and-shoulders top formations, have broken necklines, and could test
chart points lower in a measured move. Measured moves are simply
calculations of the likely move a market will make after establishing a
recognizable pattern formation.Â
You can read about these in my trading article called Defining
Reward/Risk Ratios In The Futures Markets. The Encyclopedia of Chart Patterns by Thomas
N. Bulkowski, available on
TradersGalleria, is also a good resource for many of the best known technical
patterns and gives statistics on the percentage likelihood of an impending move
as well as the likely percentage move on the chart.Â
Suffice to say that traditional measured-move analysis
projects that once a market breaks the neckline of a head-and-shoulders pattern,
the move is twice the distance from the head to the neckline. The following
charts depict the likely measured-move objectives in the cash markets underlying
the S&Ps and Nasdaq 100 futures contracts.
 
Spooked about the high value of the dollar relative to
its major trading partners, the National Association of Manufacturers said it
will pressure government officials to reduce the value of the buck. The
organization is concerned that an “overvalued” dollar will make US
manufactured goods more expensive and will slow recovery of the manufacturing sector
which many consider in a recession.Â
The prospect of a US governmental lower-dollar stance
spurred an explosion in continental currency futures with the
euro FX futures
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Swiss franc
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British pound
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The euro FX and Swiss francs also traced outside days two days after a
Turtle Soup bottom. Yesterday’s gap and today’s expansion bar in these contracts
are definite signs of nascent momentum and suggests they will fill the gap left
on May 22. The euro FX added .00980 to .86150 and basis September Swiss gained
.0066 to .5661.
In debt futures,
September T-bonds
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10-year notes
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their “early momentum indicating”
New 10-Day Highs List and on Off The Blocks
entries. A subdued as-expected Producer Price Index out today tempered inflation fears and gives the Fed greater leeway to cut rates. The July
Federal Funds contract
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as high as a 28% chance of a 50-basis-point
cut. T-bonds gained 10/32 to 101 18/32 and 10-years also gained 10/32 to
104 5/32.
As mentioned two days
ago, heating oil
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its 10- and 20-day lines and followed up with an expansion bar. (This action is
similar to what we are seeing in the euro FX and Swiss franc). The
contract is now trading at an eight-month high, is on today’s Momentum-5
List, was on yesterday’s New 10-Day List, and is making good on an Off The Blocks
entry. Heating oil rallied .0314 to close at .8328.