This Pattern Is Music To Traders’ Ears

July 24, 2001
Marc Dupee

These bars hummed last night, resonating a potential
continuation selloff was in store in a pattern that played out like music to
traders’ ears today. As mentioned in yesterday’s Futures
Market Recap, stock index futures —

Nasdaq 100 futures
(
NDU1 |
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PowerRating), S&P futures
(
SPU1 |
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PowerRating), and Dow futures
(
DJU1 |
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PowerRating)
— all left outside bars down last night. This means yesterday’s high
was higher than Friday’s high and yesterday’s low was lower than
Friday’s low. The markets then closed near their low. Last night’s commentary
reminded that “Outside bars down here are bearish.”

All three indexes tumbled for a second straight day.
Captain Greenspan couldn’t marshal the troops despite a pledge to Congress to
keep a foot on the economic accelerator. Greenspan said, “We aren’t free of
the risk that economic weakness will be greater than currently anticipated and
require further policy response,” meaning more interest rate cuts are on the
way if corporate earnings and economic indicators do not improve.

Nasdaq futures and the S&Ps each set new multi-month
lows. However, notice here that both set up potential Turtle Soup Plus Buy
reversals for tomorrow, with the trigger coming at the “old” 20-day
low made on July 11. A reversal in the S&Ps and NDU1 here would present a
test (higher) of the prior breakdown points before the market possibly tests its bigger-picture head-and-shoulders-pattern measured-move objective much
lower.

With yesterday’s outside bar down in all three stock
index futures contracts and follow-through dip today, the likelihood of a
cascade to measured-move objectives in the contractsÂ — down to 1125 in
the SPU1 and 1510 in NDU1, using traditional measuring technique — increases. If
this occurs, we will likely see a corresponding flight-to-safety move in bonds
as well.

Momentum in debt futures has already been established
with benchmark September T-bonds
(
USU1 |
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PowerRating) and
10-year notes
(
TYU1 |
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PowerRating)Â each registering on — and now
leadingÂ — the Momentum-5
List. Any selloff in stocks will likely be accompanied by continuation
safe-haven moves in these contracts. Again, using traditional measured-move
analysis (see articles in Futures Education), this time to the upside, implies a
move out of USU1’s inverted head-and-shoulder/double bottom to fill the gap left
on March 26 to 105 23/32, which would leave USU1 just off contract
highs.Â Â

August pork bellies
(
PBQ1 |
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PowerRating) have shown
nascent signs of momentum after consecutive limit-up moves last week and are now
a Momentum-5 List
member. The August contract has approached triple tops and an Elliot Wave count
implies that if we break the trips (triple tops), the current up-wave would be
wave three of a five-wave move, implying significantly higher prices in bellies
(McDonald’s complained of lagging sales on the Mad Cow scare and warehouses of
frozen bellies recently hit all-time lows, for those interested in a fundamental
reason). The current swing high (the July 23, 93.875 peak) could be construed as
a Pullback From High marker here. Hence, this would imply that we are in day two
of a pullback with the 38.5% retracement support of the most recent upswing
coming at 89.790, which also coincides with its 20-day moving average
line.Â

The weekly crop progress report showed a deterioration in
the condition of grains — especially corn. One of the lagging grains yesterday,
in comparison with soybeans’ hefty rally, corn
(
CZ1 |
Quote |
Chart |
News |
PowerRating), leapt open
to come off a short-term oversold condition. Basis December pulled back from its
highest levels of the day and provided a defined-risk entry opportunity in a
(Haggerty) Slim Jim-like consolidation, a pattern pointed out in the Mid-Day
Futures Market alert.Â

Wheat, too, leapt open on a weaker crop report, but pulled
back to finish down 1 1/2 cents at 296 1/4. Still, wheat found support at the
closing levels of the “turbo tails” (the 7/16 and 7/23 tail-pair, see
yesterday’s Futures Market Recap). This market is also a Pullback From
Highs contract.Â

This Pattern Is Music To Traders’ Ears

BUY THE FEAR, SELL THE GREED

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