Index Divergence?

[mgregor]

What usually happens when there is divergence between the NASDAQ, DJI and S&P 500 futures? How should this be interpreted?

By the Numbers As of 11:51AM ET, the futures were as follows:

Symbol Last Change %

DOW Fut 10235.0 - 48.0 -0.46%
NASD Fut 1734.0 + 20.5 +1.19%
S&P Fut 1187.0 - 4.5 -0.37%

 

[zboy2854A]

This can be interpreted in a couple ways. One is that there is rotation going on, and it pays to be short the index or stocks of the index that is down and/or long the index that is up. The other is that one index is making a move and will quite possibly soon drag the other index in the direction the first was going. I've found that the S&P's tend to be more in sync with the Dow than NASDAQ. In your example, the Dow and S&P futures were down with the NAZ up. In this case, the NAZ managed to drag the Dow and S&P up with it. As far as an overall indicator when there are divergent futures and/or cash indices, the best plan is to exercise caution and take a wait and see approach until you can establish which of the two cases it is. If it seems clear that rotation is going on, follow plan A. If it's the other case, you're best off waiting to see which index wins the tug of war and starts dragging the other with it and follow the momentum in that direction.

 

[NihabaAshi]

Quote from mgregor:

What usually happens when there is divergence between the NASDAQ, DJI and S&P 500 futures? How should this be interpreted?

Whenever I see that...its a good time to be in the market and a good time to get follow through on your trade signals.

Only time I like when every thing is moving in sync (no divergence) is after I've enter a trade and when the trade is going my way.

NihabaAshi