Don Bright and others talk about using the futures as a leading indicator for stocks. My observations lead me to believe that there is little or no value in using one market as an indicator for another. I am awestruck by the the way everything moves in lockstep. I have done overlays ad infinitum looking for consistent divergences and have not found any. If any of you can refer me to a market/stock combination where one leads the other with some consistency I would really like to see it. This would amount to a holy grail of sorts. Since these guys are successful doing this they must be using it in a different way than what I am thinking. Can someone explain how they are doing this?
You won't find any meaningful divergences because everything will be getting arbed by the big boys quickly before the retail man ever gets a chance to "set the market straight." As far as futures being a leading indicator -- I have noticed one indicator that is not future's related that future's seems to follow very consistently -- so I wouldn't agree that future's is the forefront runner of them all. However, in most cases, it is -- you'll just never see it, and any few seconds divergence wouldn't even be enough time to click your mouse button to send the order in. aphie
That's right. Don't look for meaningful divergences. I believe it all comes down to this: You are sitting there at 2:55 pm Eastern when you suddenly see the ES taking off. They move up 2 points within seconds, and large cap stocks are starting to rise. If one of them lags behind a few seconds, you jump in and buy your 1000 shares. A minute later when the move in the ES has subsided you will have made a few cents (in most cases, and assuming you only buy stocks that have been strong all day). That's all there is to it, no more no less. Just a little inefficiency in the market. Also, I don't know how you try to test for "meaningful divergences" or "correlations", but keep in mind that just because a trade is timestamped 14:56:23 does not mean it might not have occured at 14:55:00.
Check it out for yourself... try running the S&P futures chart alongside other charts of stocks you're watching......(do this for a week or two for the entire trading session) does the futures chart lead by a second or two? Just an idea.....it might work for ya......maybe, maybe not. When I remember to use this indicator, it helps me to get a "feel" for where the general market might be heading. The "futures" often "lead" the cash markets.
SPY seems to move lockstep with futures Really Though IMO "leadership" is random between the underlying and futures. I trade mostly NQ, and keep MSFT, CSCO, INTC, and QCOM on the screen as an indicator. On a big trend day, of course things all trade in lockstep, but does one lead the other, don't think so. Except for program traders, where is the cause and effect? Think opposite. If I'm a fund and I want to buy a block of a single issue without slippage, when is a better time then when futures are breaking. The stock that's lagging may be the worst candidate for keying on. All information is useful if it helps you develop a "feel' for what's going on, but no single indicatorwill ever, over the long run enable you to conquer the market. Those answers lie within you.
It may be, but if it has been strong all day chances are it will jump up even harder once the inefficiency is taken care of. And if it doesn't you usually have enough time to get out quickly without suffering a big loss, since the sellers will wait for the futures to start going down again before hitting bids. But I agree with you on most counts...
GE. If it were as simple as overlaying charts on top of each other, it would have been arbed long ago by programs that have T3 point to point direct connections to the exchange and can get the trade out onto the Ethernet wire in about 1000 assembler instructions... nitro
Lobster That makes sense. Looking for a laggard in a basket seems plausible. Obviously a scalping strategy only.