mini SP 500

I was talking about how volatility comes and goes in cycles yesterday and sure enough after ECB decision to lower rates, we saw some good, two sided trading action in stock indices along with much better volume.

More to come tomorrow in my opinion as market awaits monthly unemployment report before the cash opens ( 5:30 AM pacific time/ 7:30 AM Central time)

I must share with you my mini SP chart set up as it played out today which shows the only two signals for today  -1 buy and 1 sell ( blue diamond buy, red diamond sell). To keep this balanced I am also sharing a screen shot from a few trading days ago where two of the red diamonds generated a “failed” sell signal.

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Today’s session:

May 21st 2014 session:

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HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.  NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.  IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT.  IN ADDITION, HYPOTHETICAL TRADING DOES NO INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING.  FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS.  THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS

I wrote a quick paragraph about observing the relationship between the mini Russell 2000 and the mini SP 500 yesterday and I got a response from one of our readers that I thought is worth sharing and has some good observations, so here is below with very minor edits:

Hi Ilan,

I received your comments about Russell leading SP’s in tonight’s email, and as someone who has been watching and studying this relationship for over 5 years, I wanted to make a few comments.

Russell 2000 does tend to lead other Indexes on larger time frames like daily and larger intra-day charts like 30 min and higher. However nothing is a simple as it seems of course. And one of the biggest reasons it is not simple is because large traders and institutions know that small traders are trying to get clues from TF to trade ES, and I have seen many times where they will come in and start buying Russell and a few minutes

later start selling much larger size in ES.
Also, quite often these two Indexes will trade without any correlation at all shorter term, not sure if you saw closing minutes of Monday’s trading where TF dropped 7 points in a few minutes and ES did not budge. And then there is a matter of difference in liquidity of course, sometimes I see quite opposite take place – where ES starts moving and TF is sitting there, and it’s not until ES moved two whole points does TF starts to move a little, this happens because TF buyer will have to give up a lot of edge to buy any kind of size, and they need to see a decent move in ES before they will buy TF.

What I described above is a very small example of what happens between these two Indexes, it is important to understand that what seems to be correlation short term, in access of 80% of the time will not produce desired results. With that said….there are instances when TF’s lead is obvious, but it takes quite a bit of time to learn and understand mechanics behind it, I am afraid comparing two intra-day charts will not shed any light on this relationship, there is too much more going behind “the scenes”

Sincerely,

Simon B.

Seems like both the NASDAQ and the Russell had a healthy correction over the past 8 weeks while both the Dow and the SP500 are still flirting with the all time highs. The big question is who going to catch up with who…NASDAQ and Russell starts edging higher or SP and Dow start going lower?

Daily charts of the mini Russell 2000 as well as the mini SP 500 for your review below: