A Complete Guide to the Futures Market, 2nd Edition

CHAPTER 27

Analyzing Market Response

Markets are never wrong—opinions often are.

—Jesse Livermore

■ Evaluating Market Response for Repetitive Events

A market’s response to key fundamental developments can provide important clues about the probable future price direction. When these developments are repetitive, such as the release of key economic numbers or U.S. Department of Agriculture (USDA) reports, a systematic approach can be used to analyze the implications of market response. The general analytic procedure would involve the following steps:

1. Identify the event to be studied (e.g., the Treasury market’s response to the monthly employment report).
2. Construct a table comparing the market’s immediate reaction to a report’s release to subsequent price trends.
3. Search for consistent patterns.

There is no single correct format for analyzing market response. The objective of this chapter is to illustrate the analysis process rather than to provide specific market-response models for trading the markets. The observed responses in the following examples are moderate and there is not enough data to rule out that the results could simply be due to chance. The reader can apply a similar methodology for analyzing market reaction for other situations that may be of interest.

Example A: T-Note Futures Response to Monthly U.S. Employment Report

The U.S. employment situation report released by the Bureau of Labor Statistics is the most closely watched monthly economic release, capable ...