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Wondering, do pro traders make trades in the ES based off how individual S&P 500 stock perform in a giving day? Do they watch news programs like Bloomberg?
Can you help answer these questions from other members on NexusFi?
It's a good question, knowing that this index is a weighted cap index.
Meaning that 9 companies out of the 500 account for 30% of the index movement.
So basically, watch Apple, Microsoft, Amazon and Google and see if it helps.
I do not do this anymore but used to do it. I do watch big news events since it directly impacts the movement of the index that many people use as a hedge tool so i wrote a free site (forever free) that tracks big news, I just joined so I can't post links but it's basically my username with www in front and ends with .me so www + alittlebirdtold + .me
PS: I asked Mike if i can post this since I don't want to make any money from this site it will be forever free, hope it helps other traders
Note: see https://www.slickcharts.com/nasdaq100 for index weights (has dow, ndx, spx). As you can see from that, the nasdaq 100 (not composite, obviously) has 50% of its cap in the first 10 stocks. And this is AFTER the rebalance
As @alittebirdtoldme said, SPX is dominated by these same stocks, though not quite to the same degree that NQ is. While I pay attention to individual names like AAPL or TSLA on earnings or other significant events, in general I do not look at them. I have them all on a TradingView screen on a separate desktop which I will glance at during the day sometimes, just to scroll them them (30 seconds total) and see the shape of the chart. But otherwise, you are just as good using NQ as a proxy, IMHO.
One of the best things you can do is understand how things are weighted, and use that. So, when you see NQ going up and YM going down, ES is almost certainly going to be choppy and stuck in the middle. I use ladders to see this visually very clearly. Given the lack of diversification in the major indices these days, it's critical (for me anyway) to use NQ and YM (it's representative enough of "non tech") when trading ES.
Also note the arbitrage that is going on per microsecond on these markets, if there was an edge in watching big stocks compared to an index any edge in that for sure has been arbitraged out to the max.
Yes. And arbitrage is actually an important thing in the markets, not just an arcane strategy.
Arbitrage is what keeps two things that "should" be similar or in line, actually in line. If ES gets a little out of step with, for instance, a basket of stocks that tracks the S&P (or with the S&P itself), then there are quick and deep-pocketed traders (and firms) who will sell the higher and buy the lower. This means they have a quick profit from the difference between them, and it's good money, although small unless they trade in sufficient size. Because it's sure money if you're fast enough, there are a lot of players who are into it, and their actions bring the two different prices back in line (the side that is higher is sold and goes down, the one that is lower and is bought and goes up.)
People often ask questions like, "why does the ES move the same as the S&P?", or "how can trading in S&P affect ES?" (or vice-versa, "can trading in ES move the S&P?"), and even, "how can trading in ES even move the ES itself at all, when it's supposed to all be tied to the S&P? How can anything except trading in S&P stocks move the ES?" -- plus variations of the same questions. The answer is that these markets are all tied together, and are kept together, by arbitrage.
This has bearing on the question of the thread, because it's why movement in any stock has any impact on ES futures at all. The relationship is kept in place by the arbs ("arbitrageurs" -- odd that it looks like a French term, but there it is .)
But while it bears on the question, it doesn't answer it. I stopped paying much attention to pure stock market factors, knowing that ES or YM or NQ or whatever can be traded on its own.... but others do look at stock issues, in various ways, knowing that what happens on one side affects the other. (Which is the tail and which is the dog? Well, I guess it depends on what that dog is doing. Since it's all connected, and kept that way by arbitrage, you could use either side, or only one, or parts of either.)
Kind of a sprawling, all-over-the-place answer, but that's the nature of it.
Simpler answer: you can use stock movement, but you don't have to. Based on posting in this forum, probably most traders don't use anything but the action of their own instrument, but quite a few will look beyond it to some extent. There are also big price-changing events, such as Fed interest-rate changes, that almost everyone stays aware of (even if they just stay out of the markets until the effect of the event is clear.)
As to news, just be careful about that, because by the time you know about it, whether from Bloomberg or anywhere else, a lot of much better-connected people than you have already acted on it. It's hard to be ahead of them.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Also if you are a daytrader in the futures markets you need to keep an eye on the important news factors.
It's not you are playing the game of BEATING the news, it's more so you have an idea what is going on and if what you see correlates with the news.
Things don't happen in split seconds for day traders all the time, after major news events move happens for minutes and minutes or even the rest of the day.
Knowing what the high impact news event is for the market specifically trading indexes like ES and NQ is imho key.
Pretty much agree with this, at least regarding scheduled news releases. News may have a completely unpredictable outcome as the market reacts. But it is a very good idea to always know when potentially market-moving news is scheduled to be released (as in the periodic reports that have dates and times). Interpretation is up to you.
Most people use one of the economic calendar sites. There are a bunch of them. I use this one: https://us.econoday.com/byweek?cust=us . There are others. Use Google to find them.
As to unexpected news events, those will be iffier. If something suddenly happens out of the blue, you are definitely on your own as to its meaning. There are differences of opinion as to their usefulness. As with anything else, it's best to try and see.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
I've read about this in Elder's and Minervini's book. They are talking about the inverse thing. Watching index to trade stocks. Using relative strength - stock vs index and comparative strength - stock vs stock (same sector/group). To filter out the best stock. This method is suitable for both intraday and long-term.
It also makes sense because individual stocks are less efficiently priced than the whole index of them.
Watching news on Bloomberg throughout the day is more of entertainment.
Selectively fading what Economist/Bloomberg/WSJ/Barron writes, might work.
