Tag: futures trading

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: