Tech analysis and futures trading

cafeole

cafeole

Something I have always been curious about. Since ES is arb'd to the SP500 index, and the SP500 index is a weighed average of the prices of 500 stocks, how can anyone use technical analysis on it?

I can understand using tech analysis on stocks which are directly traded, but an index is just the average of all the stocks in that index.
 
The price chart shows the recent buying bias or recent selling bias amongst the investors involved. With a sufficiently large group of investors, you get a pretty reliable indication as to whether more have been recently either buying or more selling. Pretty much the same when you have a pool of investors in a number of stocks.

I've got to stress the obvious, the chart tells you what has been happening, not what will happen. That said, buyers only buy in expectation of a higher price so being long when the majority have been buying and look like they'll continue is a reasonable decision.
 
Have wondered this as well. However, I think TA probably does work on it since the price movements are correlated with the holdings.
 
The mechanics of the construction, and weighting of the index is one thing...the arbing of the ES is another thing. Two different subjects. The index still drives the ES. Now we can talk about what drives the index but then we must talk about farm animals.:D

ES

cafeole said:
Something I have always been curious about. Since ES is arb'd to the SP500 index, and the SP500 index is a weighed average of the prices of 500 stocks, how can anyone use technical analysis on it?

I can understand using tech analysis on stocks which are directly traded, but an index is just the average of all the stocks in that index.
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cafeole said:
I think TA works, I just don't know why.
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Maybe if you can explain what TA is trying to do, you will find your answer. That being said TA works wherever your brain recognizes patterns. This could be for a graph of daily temperatures or a graph of the amount of Honda civics that drive by you. Making accurate FUTURE predictions using TA is another discussion altogether. It seems there are 1000 people here on ET who make 8 figures a year trading using TA, I'm sure they will chime in.....
 
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ElectricSavant said:
The mechanics of the construction, and weighting of the index is one thing...the arbing of the ES is another thing. Two different subjects. The index still drives the ES. Now we can talk about what drives the index but then we must talk about farm animals.:D

ES
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The premise is this - ES, arb'd to SP500, moves almost exactly the same as the index. Anyone trading the ES is essentially trading the larger index. Very relevant, since the larger index moves as an average of the underlying 500 stocks.

I don't get the cow reference.
 
Think about the herd...

About your premise...If TA worked or did not work on the index why would arbing cause it to be different on the ES. Do you know what arbing is? The price is sucked in so fast by the time you apply your TA to it there is no difference. You do not get a smoothing effect as you imagine... which I am guessing is your hypothesis to your premise.

ElectricFarmAnimalSavant

cafeole said:
The premise is this - ES, arb'd to SP500, moves almost exactly the same as the index. Anyone trading the ES is essentially trading the larger index. Very relevant, since the larger index moves as an average of the underlying 500 stocks.

I don't get the cow reference.
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