Why does QQQ have the same chart pattern as Nasdaq index?

Discussion in 'Trading' started by jmark4, Jul 25, 2002.

  1. jmark4


    I am amazed about the similarity between QQQ chart and Nasdaq Index.
    QQQ is a stock composed of buyers and sellers, while Nasdaq index is an aggregate of various prices of certain stocks like CSCO, MSFT, SUNW, etc.
    So why does QQQ have the same pattern as Nasdaq Index? Is this a miracle?
  2. are you kidin?? :p
  3. jmark4


    Does your kiddin means the answer is easy or it means QQQ and Nasdaq Index don't follow the same pattern?

    If it means the answer is easy, could you please explain because I don't know the answer.
  4. JMark,

    I'll assume you're new to trading, and as i'm new to futures and asked a lot of questions, i'll give your question a shot.

    If the QQQ's get out of line with the index, there are arbitragers that will bring them back in line.

    Basically, there are people with "baskets" pre-made with the underlying stocks (in the correct proportion) that make up the index. So if the QQQs are trading at a premium to the index, they'll simultaneously buy the stock basket and short the QQQs, thus locking in a profit. What this also does is raises the price of the index (because they're buying the underlying stocks) and lowers the price of the QQQs (since they're selling them short).

    The same works in reverse, if the QQQs are at a discount, they'll short the basket of stocks and go long the QQQs.

    That's the simple explanation, as i understand it.

    Don't be afraid to ask more questions or more detail if you don't understand, most of the people here are happy to help.
  5. jmark4


    Thank you for your answer. I have been wondering why by putting my bid on Island to buy QQQ it should affect the index. I have also noticed that QQQ tracks Nasdaq futures during premarket hours. So I think the same argument applies here.
  6. Your bid on Island cannot affect the underlying index.
  7. If you know what the QQQ's are, then you know that by definition the QQQ's should have a very high correlation with the nasdaq index. Same goes for SPY and the S&p 500, and DIA and the Dow 30.

    They are really just ways to play the index on the stock market without having to buy the individual stocks. You should be suprised if they don't match up with the indexes, not if they do.
  8. That's assuming you don't have enough capital.

    Give me $1,000,000,000 and I will show you a QQQ bid on ISLD that affects the NDX.
  9. Babak


    That's funny. When I first saw the title of the thread, I assumed the author meant the difference between the QQQ (Nasdaq 100) and the Nasdaq Composite (2000 index).

    Whether jmark4 meant that or just the reason why the QQQ tracks the Nasdaq 100, he needs to do some homework.