Q on stock following index...

Discussion in 'Technical Analysis' started by Tarl_Cabot, Oct 21, 2006.

  1. Hello,

    A few days ago, I was looking at the 1 Day chart for a particular NASDAQ stock, a medium sized company (15 B cap) that is well known, but not something that ever moves the market as a whole (unlike IBM lately, for example).

    Anyway, I added the NASDAQ Index for the day to the same chart, and to my surprise, the curves matched very closely.

    What I mean is that every time the NASDAQ went down a slight amount, the stock went down and vice versa.

    For example, there was a particular ten minute dip in the NASDAQ, and a ten minute dip in the stock at the same time. Several spikes in the NASDAQ corresponded to spikes in the stock at the same time. Slow up and down trends were also mirrored.

    I happen to know a lot about the business of this particular stock, and there were absolutely no news items in this sector that day (nor the day before). (I'm not identifying the actual stock, in order to avoid the typical diversion of the thread into a discussion of the product or the company.)

    So, clearly the stock was not influencing the NASDAQ , so either the minute changes in the NASDAQ were somehow affecting the stock price directly on a minute-to-minute basis, OR some other factor was affecting both the NASDAQ and the stock price directly.

    My hunch is that something about the order execution process (which I do not know much about) might be causing this.

    Any insights would be of interest, thanks !
  2. it's all about 'arbing'. futs usually lead...traders follow the futs index where the stock they are tradin' is listed and act accordingly to what the futs do.
  3. So, what you are saying is that a lot of the purchases of the stock represent purchases that include a lot of the NASDAQ stocks - especially during those ten minute periods when the stock exactly mirrors the NASDAQ. Is that correct?

    That would make sense, because there was no news whatsoever on the stock itself, so no reason for any holders to sell or anyone to buy - other than for reasons which equally applied to the market as a whole.

    This would also explain why that stock went up for a few days during the period where the market as a whole was rising, even though most people agree that the P/E was starting to get a little high for the company, given its expected future earnings.
  4. as i said, traders [includin' me] look at futures for hints as of where the stock they are tradin' will be goin'. futs lead, stocks follow; as simple as that. it's not always the case but it applies most of the times, especially for large caps that have a substantial weightin' in the index.
  5. Are you referring to the futures for the particular individual stock ?

    In this case, the stock pays no dividend (and never has), so I don't see any reason for a difference between the stock and a futures contract for the stock.

    (As you can see, I've previously only been involved with issues facing long-term value, and so have little experience with these short-term events - although they are interesting, too!)