Do the Indices Lead Stocks?

Discussion in 'Trading' started by Corso482, Oct 7, 2003.

  1. The answer is it depends.

    At times, trading in the futures causes moves in the equities and/or index ETFs which then moves the cash indices (which are just arithmetic calcs based on the underlying equities). At other times, the moves in the equities and/or ETFs (which themselves move equities) force corresponding moves in the futures. To believe that one always leads the other is wrong. It's an arbitrage function - it can be triggered either way, so one does not always lead the other (that's why there are buying AND selling points in program trading).

    So when trading the ES, it's usually a good idea to know what's also going on in the SPX and SPY (e.g., you could be stalling at an SPY resistance even though you're not yet at your expected ES resistance, but the selling in the SPY (which is what resistance is of course) could be enough to stall both since they're linked by arbitrage).
    #11     Oct 7, 2003