Tech analysis and futures trading

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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caféolé, your simple question deserves a simple answer :D:

With a minor assumption of non-lumpy liquidity, yes, both the ES and the SPX will move the same, and on T/A tools that are price-only, will obtain identical results.

But since the SPX Index doesn't *trade*, there is no volume for it -- so any volume or volume-utilizing studies (MFI, for one) are no-go. At that point, you are left with the ES future contract, which (as discussed above) is one of the more liquid things around, in the front month.

That's it. :fistbump:
 
The tail also wags the dog.

Rather than suggesting analyzing stocks to predict index direction (on whatever timeframe), index movements may drag the individual stocks around. In reality, the causative links run in both directions... there's a tremendous amount of volume in the indexes and this trickles back to the individual stocks. The same applies to es, and spy
 
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