Laws of Motion in the Futures Market

Movement begets movement, and momentum begets momentum. The concept that a body in motion tends to stay in motion is basic to physics, and it's called Newton's First Law of Motion.

Also known as the Law of Inertia, the principle more formally states that a body in motion tends to stay in motion with the same speed and in the same direction unless an external force is applied. The concepts of motion and momentum also apply to financial markets, and they underpin market trends.

I've written about how collective signals of nascent momentum can lead to sizable market moves. Coffee, feeder cattle and the Canadian dollar serve as recent examples.

But when multiple markets exhibit signs of momentum at the same time, that can be evidence that a fundamental shift in market forces is at hand.

What Qualifies

First, let's review. To qualify as a potential nascent momentum mover, a market must have made at least five gaps, expansion bars or laps in the direction of the momentum during the past calendar month. A gap occurs as a hole in a chart where none of the price action overlaps from one day to the next. An expansion bar here is defined as the largest range day in a week. Similar to a gap, a lap up is a pop higher where the previous day's close and the next day's open or close don't intersect but the highs and the lows of the two sessions do intersect. (The opposite is true for a lap down.)

Let's look at three markets demonstrating the critical mass of at least five gaps, laps or expansion bars over the past month and then see how they relate. June 10-year notes (TYM3:CBOT) nudged to a record high close last Friday.

Similarly, June Swiss francs (SFM3:CME) have plowed to a new contract high and left a critical mass of telltale signals along the way.